How Much House Can I Afford in Todays Market?

Buying a house . . . it’s a huge life milestone and comes with a lot of emotions. (Excitement? Check. Slight panic? Also check!) But don’t worry. 

How to Calculate How Much House You Can Afford

If you want to dig a little deeper on how much house you can afford and get into some of the more nitty-gritty details, I’ve got you covered. We’re going to go over all the numbers step by step. (Don’t worry if math isn’t your thing—I promise I’ll break everything down and make it super simple to understand.)

1. Figure out 25% of your take-home pay.

To calculate how much house you can afford, use the 25% rule we talked about earlier: Never spend more than 25% of your monthly take-home pay (after tax) on monthly mortgage payments. That includes your mortgage principal, interest, property taxes, home insurance, PMI and HOA fees. 

Just add up how much you (and your spouse, if you’re married) bring home each month and multiply that by 0.25. For example, here’s what that would look like with a household take-home pay of $6,000:

$6,000 × 0.25 = $1,500

Easy, right? Stick to that number and you’ll have plenty of room in your budget to tackle other financial goals, like investing for retirement or saving for your kid’s college.

2. Use our mortgage calculator to determine your home budget.

Now that you’ve calculated 25% of your take-home pay to figure out your maximum monthly payment, we need to translate that into the amount you can afford to spend on a house—and how much you should budget for a down payment.

You could crunch the numbers on that yourself by using a complicated formula (no thanks!), but you’ll save yourself a lot of time and headaches by simply using our handy-dandy free Mortgage Calculator. It will let you try out different combinations to find the right mortgage amount, interest rate, and down payment combo for your budget.

Go give it a try!

By the way, you should always aim for a down payment of at least 20%. Not only does a bigger down payment mean smaller monthly payments and less debt, but putting 20% down means you won’t have to pay for private mortgage insurance (PMI)—potentially saving you hundreds every month.

A 5–10% down payment is fine if you’re a first-time home-buyer, but get ready for bigger monthly payments and PMI.

3. Calculate your closing costs.

A down payment isn’t the only cash you’ll need to save up to buy a home. There are also closing costs to consider. Things like . . .

• Appraisal fees
• Home inspections
• Loan origination fees
• Credit reports
• Attorneys
• Home insurance
• Property taxes

On average, closing costs are about 3–4% of the purchase price of your home—and you need to be able to pay for them with cash.¹ So start saving! Your lender and real estate agent will let you know exactly how much your closing costs are so you can pay for them on closing day.

Whatever you do, don’t let the closing costs keep you from making the biggest down payment possible. The bigger the down payment, the less you’ll owe on your mortgage!

4. Factor in homeownership costs.

Here’s the truth: Owning a home is expensive. Between repairs, upgrades and maintenance, those bills can add up. Bills such as . . .

• Increased utilities: On average, if you’re used to paying $100–150 on utilities as a renter in an apartment, you might need to bump up that budget closer to $400 a month as a homeowner.²

• Maintenance and repairs: Most homeowners spend about $3,200 a year on home maintenance projects.³ This could include things like landscaping, or routine services like pest control and HVAC tune-ups.

• Upgrades and additions: Minor home upgrades can cost major bucks, so you’ll need to plan for that in your budget. For example, a minor kitchen remodel can cost over $26,000.⁴

That’s why you should save up an emergency fund worth 3–6 months of your typical expenses before you buy a house (in addition to paying off all your consumer debt). When you don’t have an emergency fund, any unexpected expense that pops up can become a crisis. But with an emergency fund, an unexpected expense becomes nothing more than an inconvenience.

So, when you’re figuring out how much house you can afford, don’t forget to factor saving for emergencies into the equation.

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