How Much House Can You Afford? Tips for Setting a Realistic Budget

Jul 31

Buying a home is one of the biggest financial decisions you'll ever make. Whether you're a first-time buyer or considering a move, understanding how much house you can realistically afford is essential to avoid financial stress and set yourself up for long-term success.

Here are practical tips to help you set a smart, sustainable home-buying budget.

1. Start With Your Monthly Income

Before you fall in love with a home, start with a clear picture of your finances. Look at your monthly gross income—that's what you earn before taxes and deductions.

As a general rule, your total housing costs (mortgage, taxes, insurance, and HOA fees if applicable) should be no more than 28–30% of your gross monthly income.

👉 Example: If your gross monthly income is $6,000, aim for housing costs around $1,680–$1,800.

2. Factor in Your Monthly Debts

Lenders also consider your debt-to-income (DTI) ratio—that’s the percentage of your income that goes toward monthly debt payments, like student loans, car loans, or credit cards.

Ideally, your DTI should stay under 36%. Some loan programs may allow higher ratios, but staying under this number can help you avoid stretching your budget too thin.

3. Consider the Full Cost of Homeownership

A mortgage payment is just one piece of the puzzle. Here’s what else to factor in:

Property taxes: These vary by location and can significantly affect your monthly payment.
Homeowner's insurance: Costs depend on the size, value, and location of your home.
Private Mortgage Insurance (PMI): If your down payment is less than 20%, you may be required to pay PMI.
Utilities: Water, electricity, gas, trash—these can add up quickly.
Maintenance and repairs: A good rule of thumb is to budget 1–3% of the home’s value annually.

4. Get Pre-Approved—but Know Your Comfort Zone

Getting pre-approved by a lender is an important step in the homebuying process. It shows sellers you're a serious buyer and gives you an idea of what you can qualify for. But here’s the key:

Don’t feel obligated to spend the full amount you’re approved for.

Your lender doesn’t know your personal goals or lifestyle preferences. You might want room in your budget for travel, savings, or childcare—so focus on what you are comfortable with, not just what you can borrow.

5. Save for a Down Payment and Closing Costs

A larger down payment can reduce your monthly payment and help you avoid PMI. Conventional wisdom suggests 20%, but many loan programs allow as little as 3–5% down.

Also, don’t forget closing costs, which usually range from 2–5% of the home’s purchase price. These include lender fees, title insurance, escrow, and more.

6. Think Long-Term

Before buying, ask yourself:

Will your income stay the same or grow?
Do you expect any major life changes—starting a family, career moves, etc.?
Can you handle unexpected repairs or emergencies?

Buying slightly below your max budget gives you flexibility and peace of mind, especially in times of uncertainty.

Final Thoughts

Homeownership should be a source of pride—not pressure. Setting a realistic budget is about more than what the bank says you can afford; it’s about aligning your home purchase with your financial goals and lifestyle.

If you're not sure where to start, I’d be happy to connect you with trusted lenders in our area who can walk you through your options. Let's make sure your next home fits both your dreams and your budget.

Katie Dewar