How Much House Can You Really Afford?

When asking "How much house can I afford?", the first mistake most buyers make is looking only at the mortgage payment (principal and interest). This narrow focus leads to thousands of buyers becoming "house poor" each year—meaning their entire paycheck goes toward the house, leaving nothing for travel, savings, or emergencies.

To find your true affordability limit, you need to understand your income, your debt, your upfront cash, and the hidden ongoing costs of homeownership.

1. Income and Debt (The DTI Ratio)

Lenders use your Debt-to-Income (DTI) ratio to determine how much they will lend you. This is your total monthly debt payments (including the new mortgage) divided by your gross monthly income.

• The 28% Rule: Ideally, your total housing payment should not exceed 28% of your gross monthly income.
• The 36% Rule: Your total debt (housing + student loans + car loans + credit cards) should ideally stay under 36% of your gross income.
• Lender Maximums: Lenders will often approve you for a DTI up to 43% (or even 50% in some cases). Just because they approve you for this amount does not mean you should take it.

2. The Upfront Costs: Down Payments & Closing

Affordability isn't just about the monthly payment; it's about the cash you need on closing day.

3. The Hidden Monthly Costs

A $350,000 house at a 6.5% interest rate costs about $1,770/month in principal and interest. Use the Mortgage Calculator to see base payments. But here is what else you must budget for:

• Property Taxes: Varies wildly by location, but often adds $300 to $800+ to your monthly bill.
• Homeowners Insurance: Required by lenders, adding $100 to $200+ monthly.
• Utilities: Houses cost significantly more to heat, cool, and power than apartments.
• Maintenance (The 1% Rule): You must save 1% to 1.5% of the home's value annually for repairs. On a $350k house, that's ~$300-$400 a month in forced savings.

Real World Scenarios: Avoiding the "House Poor" Trap

Let's look at two buyers making $85,000 a year (Take-home pay after taxes: ~$5,200/month). They are both looking at a $350,000 home with $20,000 down.

Curious which scenario looks like you? Check the House Poor Risk Calculator to see how safe your budget really is.

Always keep an emergency fund of 3 to 6 months of living expenses separate from your down payment. Before you start touring houses, Review the First-Time Buyer Checklist to ensure your finances are truly ready.