How Much House Can I Afford?

Being realistic with how much house you can afford is very important. You cannot set your mind on houses that are unrealistically beyond your budget. But that is totally at your discretion. This guide will tell you what the optimal amount is and how much you can really afford.

Why Budgeting Early Matters

Before you start looking at homes, it is very important for you to realize your current financial situation. This means you have to account for your monthly expenses, debt, savings, and most importantly, your income. These denominators are the basis for how much you can afford and beyond that, there is a technique that has being used for many years by buyers and agents as well that ensures you are shopping within your means.

Use the 28/36 Rule to Estimate Affordability

The 28/36 rule is a well-known benchmark that many lenders use to figure out how much credit they’re willing to offer you. It’s a quick way to determine your affordable monthly housing costs and overall debt limits.

How the 28/36 Rule Works:

• The "28" means no more than 28% of your gross monthly income should go toward housing expenses. These include:
   
  • Mortgage principal
     
  • Interest
     
  • Property taxes
     
  • Homeowners insurance
     
• The "36" refers to total debt, which includes your housing costs plus other monthly debts like:
   
  • Car payments
     
  • Student loans
     
  • Credit card minimums
     

These combined debts should not exceed 36% of your gross monthly income.

Example:

Let’s say you earn $70,000 per year:

• Divide $70,000 by 12 = $5,833 monthly gross income
   
• 28% of $5,833 = $1,633
   
• This means you should spend no more than $1,633 per month on housing.
   
• 36% of $5,833 = $2,099
   
• Your total debt payments (housing + all other debt) shouldn’t exceed $2,099/month
   

A Deeper Look at the 28/36 Rule

A widely recognized guideline to assess affordability is the 28/36 rule. This rule is basically your monthly housing expenses, including: 

• Mortgage Payments
• Property Taxes
• Homeowners Insurance

 

should not exceed 28% of your gross monthly income. 

Apart from the 28% there is also this 36% percent. This 36% would be your monthly obligations that includes some of these:
 

• Car Loans
• Credit Card Payments
• Student Loans
• Personal Loans
• Child Support

These factors should not exceed 36% of your gross income.

To illustrate this clearly, you can refer to this example:

If your annual income is $70,000, your gross monthly income would be approximately $5,833. Applying the 28% guideline, your housing expenses should be no more than $1,633 per month. Considering the 36% total debt recommendation, all your monthly debt payments combined should not exceed $2,100.

While the 26/36 rule is an important tool, you should also consider your cost of living and lifestyle choices that can influence what you consider would be affordable. Some lenders may have different criteria and programs like in the Federal Housing Administration could allow you for a higher debt-to-income ratio should you consider seeking for their assistance.

Why You Should Get Preapproved

Getting preapproved for a mortgage is a smart move before you begin your home search. A preapproval gives you a solid idea of your borrowing power and shows sellers you’re a serious buyer.

When you get preapproved:

• A lender reviews your financial info
   
• They give you a maximum loan amount
   
• You get a better understanding of what price range to target
   

This saves you time and gives you confidence as you tour potential homes.

Don't Forget Taxes & Insurance

Taxes and Insurance may vary depending on the location and state. These are also what first-time homebuyers should also consider. Property taxes and homeowners insurance are critical part in considering your monthly housing expenses.

Pro tip: I can help you estimate these costs based on the area you're shopping in and the type of home you're considering.

Other Important Costs to Keep in Mind

Aside from mortgage payments, taxes, and insurance, remember to budget for:

• HOA fees (if applicable)
   
• Utilities (water, gas, electric, trash)
   
• Maintenance and repairs
   
• Furniture or upgrades
   

Additionally, be mindful of other costs associated with homeownership. Beyond the mortgage, expenses such as maintenance, utilities, and potential homeowners association (HOA) fees can impact your monthly budget. Planning for these expenses ensures a more comprehensive understanding of what you can comfortably afford.

Why a Buyer's Agent Is Helpful

As your buyer’s agent, I can help you:

• Understand what homes are truly within your budget
   
• Estimate all monthly costs accurately
   
• Connect you with reliable lenders for preapproval
   
• Provide advice specific to your lifestyle and goals
   

Let’s work together to find a home you can comfortably afford and truly enjoy.