How Much Home Can You Afford? A Simple Guide to Budgeting for a Home
Buying a home is exciting, but before you start browsing listings and attending open houses, it’s important to set a realistic budget. Knowing how much home you can afford will help you shop with confidence and avoid financial stress down the road.
This guide will walk you through key factors to consider when determining your homebuying budget, including mortgage payments, hidden costs, and practical financial tips.
Understanding the 28/36 Rule
Lenders use a common guideline to determine affordability: the 28/36 rule.
✅ 28% Rule – Your monthly housing costs (mortgage, property taxes, insurance, and HOA fees) should not exceed 28% of your gross monthly income.
✅ 36% Rule – Your total debt payments (housing + car loans, student loans, credit card payments) should not exceed 36% of your gross monthly income.
Example:
If your household earns $6,000 per month, your:
Ideal housing budget = $6,000 × 28% = $1,680/month
Total debt limit = $6,000 × 36% = $2,160/month (including car loans, student debt, etc.)
This is a great starting point, but other factors—like down payments and interest rates—also impact affordability.
Calculating Your Mortgage Payment
Your monthly mortgage payment includes:
🏡 Principal & Interest – The loan amount plus interest.
🏡 Property Taxes – Varies by location; often included in your mortgage payment.
🏡 Homeowners Insurance – Required by lenders to protect your home.
🏡 HOA Fees (if applicable) – Common in condos and planned communities.
Use a Mortgage Calculator!
You can use an online mortgage affordability calculator (like the one on Zillow, Realtor.com, or Bankrate) to estimate monthly payments based on different loan amounts and interest rates.
The Down Payment Factor
Your down payment directly affects how much you can afford.
✅ Conventional loans – Typically require 5-20% down.
✅ FHA loans – Require as little as 3.5% down (good for first-time buyers).
✅ VA & USDA loans – May require 0% down for eligible buyers.
Example:
A $300,000 home with a 10% down payment ($30,000) = Loan of $270,000.
A $300,000 home with 20% down ($60,000) = Loan of $240,000 (lower payments, no PMI).
💡 Tip: If you put down less than 20%, you may have to pay Private Mortgage Insurance (PMI), which increases your monthly costs.
Don’t Forget the Hidden Costs
Beyond the mortgage, here are other homeownership expenses:
💰 Closing Costs – Typically around 5% of the home price (covers lender fees, title insurance, and more).
🔧 Home Maintenance – Budget 1-2% of the home’s value per year for repairs.
🚰 Utilities & Property Taxes – These vary by location and home size.
🛠 Furniture & Moving Costs – Buying a bigger home may mean needing new furniture.
Get Pre-Approved Before You House Hunt
A mortgage pre-approval will tell you exactly how much you qualify for based on your income, debt, credit score, and down payment.
🏦 Steps to Get Pre-Approved:
Check your credit score (higher scores = better loan terms).
Gather documents (pay stubs, tax returns, bank statements).
Contact lenders to compare interest rates & loan options.
Receive a pre-approval letter—showing sellers you’re a serious buyer!
Final Thoughts: Find Your Comfort Zone
Just because you qualify for a certain loan amount doesn’t mean you should spend the max. Choose a home price that fits your lifestyle and future goals.
📌 Need Help Finding a Home That Fits Your Budget?
I can help you navigate the home-buying process and find the perfect home within your budget. Contact me today to start your search!
Do you think you’re ready? Contact us today to get started, we’ll match you with our best resources to get started on a pre-approval for a mortgage!
