How Much House Can I Afford? A Step-by-Step Guide

Searching for a new home but unsure what your budget should be? Knowing how much house you can afford is one of the most important first steps in the homebuying process. In this guide, we’ll walk you through the key financial factors lenders use, budgeting tips for long-term affordability, and tools to help you make a smart, informed decision.

Step 1: Understand the 28/36 Rule

Most financial advisors and mortgage lenders use the 28/36 rule to help buyers determine how much they can comfortably afford.

• 28% Rule: No more than 28% of your gross monthly income should go toward housing costs (mortgage, property taxes, insurance).

• 36% Rule: Your total debt payments (including mortgage, student loans, car loans, and credit cards) should not exceed 36% of your gross monthly income.

Step 2: Calculate Your Debt-to-Income (DTI) Ratio

Lenders assess your financial health using your DTI ratio:

A DTI below 36% is ideal. If yours is higher, you may need to pay down debts or reconsider your budget.

Step 3: Factor in a Down Payment

The more you put down, the less you borrow. Most conventional loans require 5–20% down, while FHA loans may need as little as 3.5%. A larger down payment often leads to lower monthly payments and helps avoid private mortgage insurance (PMI).

Step 4: Account for Additional Costs

Don’t forget the other costs of homeownership, including:

• Property taxes

• Homeowner’s insurance

• HOA fees (if applicable)

• Maintenance and repairs

• Utilities

Use a mortgage calculator to factor in these variables for a more accurate estimate.

Step 5: Get Pre-Approved

A mortgage pre-approval gives you a clear picture of what a lender is willing to offer, based on your credit score, income, and debts. This also strengthens your offer when it’s time to bid on a property.

Step 6: Leave Room for Life

Just because you can spend a certain amount doesn’t mean you should. Factor in lifestyle expenses, future savings, and a safety cushion for unexpected costs.

💡 Final Thoughts

Figuring out how much house you can afford isn’t just about numbers—it’s about peace of mind. With a clear understanding of your financial limits, you can shop confidently and avoid future financial strain.

Contact me today and I can help you navigate your way to affording a home.

Joanne Bacourt
Realtor® | CENTURY 21

📞 Phone: (407) 502-9189
🌐 Website: www.Joanne.Bacourt.com 
✉️ Email: Joanne.Bacourt1@gmail.com