{"id":18902,"date":"2020-09-30T12:34:56","date_gmt":"2020-09-30T19:34:56","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=18902"},"modified":"2026-04-17T07:17:39","modified_gmt":"2026-04-17T14:17:39","slug":"buyer-how-much-house-can-i-really-afford","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-how-much-house-can-i-really-afford\/","title":{"rendered":"How Much House Can I Really Afford Without Going Broke? Determining Buyer\u2019s Budget"},"content":{"rendered":"

You\u2019ve worked hard toward your dream of owning a home, scrimped and saved for a down payment<\/a>, and the time to shop for a place to call your own has finally arrived.<\/p>\n

A home is no small purchase, and as you scroll through the listings in your area you start to wonder \u2014 how much house can I really afford?<\/p>\n

That answer depends on several things, from your annual income to the size of your down payment<\/a>, and the amount of debt you currently carry.<\/p>\n

To figure out how much house you can afford, follow these steps to determine a comfortable budget. You can also check out HomeLight\u2019s affordability calculator<\/a>, which can help you settle on a price range that works for you.<\/p>\n

\"Make<\/a>
Source: (garagestock \/ ShutterStock)<\/figcaption><\/figure>\n

Step 1: Evaluate your situation<\/h2>\n

The first step toward determining how much house you can afford is to take a close look at how much income you earn.<\/p>\n

Consider whether you\u2019re employed full-time or part-time and whether that\u2019s likely to change in the future. Do you have other income, such as a side hustle or rental property<\/a>, that contributes to your annual income? Are you the recipient of alimony or child support? All of these factors will determine what you can afford.<\/p>\n

Likewise, you\u2019ll need to take a look at your expenses. Add up your bills, plus any other debts or payments you\u2019re responsible for, to get a feel for how much of your monthly budget is already spoken for. You\u2019ll need to consider your day-to-day living expenses as well, like the money you spend on groceries and gas, so that you can budget for those, too.<\/p>\n

Your credit score<\/a> also plays a part in determining how much you can afford. A good credit score<\/a> demonstrates to lenders that you\u2019re likely to pay your bills in full and on time. Therefore, the better your credit score, the lower your interest rate will be \u2014 and the lower your interest rate, the smaller your monthly payments will be.<\/p>\n

Keep in mind that what you think you can afford and what a mortgage lender is willing to loan you to buy a home doesn\u2019t always match up. That\u2019s because your lender is looking at what you pay in debts each month relative to your income.<\/p>\n

\u201cYou may think you can afford a certain amount, but a lender looks at certain formulas like your debt-to income-ratio, your employment, and your credit history,\u201d says Sherry Ludecker<\/a>, a top-selling real estate agent in Johnson City, Tennessee<\/a>, who specializes in helping first-time homebuyers. Each of those things impacts the amount of money a lender is willing to fork over to a buyer. \u201cYou should really be talking to a mortgage lender<\/a> before you are looking at houses to make sure you are in the right ballpark.\u201d<\/p>\n

In 2019, the typical buyer financed 88% of their home price<\/a>, putting down 12% of the home\u2019s price as a down payment. You\u2019ll need to consider how much money you have saved up and how much of your savings you plan to spend on the down payment and closing costs<\/a>; both play a part in the home you\u2019ll ultimately be able to afford.<\/p>\n

Step 2: Think ahead<\/h2>\n

You might be buying a house to live in today, but before you settle on a budget, consider what your life might look like three to five years from now.<\/p>\n

Might you ditch your side hustle or reduce your hours at work? Do you plan on having children soon, and will you or your partner stay home to care for them? Or will you send them to daycare \u2014 and how much does that cost?<\/p>\n

Plan your budget with the long term in mind so you don\u2019t find yourself in over your head down the road.<\/p>\n

\"Consult<\/a>
Source: (Tero Vesalainen \/ ShutterStock)<\/figcaption><\/figure>\n

Step 3: See what\u2019s possible<\/h2>\n

Now that you\u2019ve got a good idea of your monthly budget and its potential to change in the future, it\u2019s time to see what your financing options are.<\/p>\n

\u201cStart by talking with a mortgage lender or your bank before you make assumptions about what you\u2019ll qualify for and what you can afford,\u201d advises Ludecker.<\/p>\n

\u201cIf you don\u2019t have a great lender in mind, your real estate agent can give you some trustworthy options.\u201d<\/p>\n

Once you connect with a good lender, find out what your loan options are. Some loans like FHA loans<\/a>, USDA loans<\/a>, or VA loans<\/a> allow you to purchase a home with a low down payment<\/a> (3.5% down for FHA and 0% down for USDA or VA), but with a few caveats.<\/p>\n

For example, borrowers with FHA loans who put down less than 20% must pay mortgage insurance<\/a>. An FHA loan<\/a> can require mortgage insurance for the lifetime of the mortgage if you put down less than 10% when you buy the house.<\/p>\n

Next, determine what kind of interest rate you will get. If your credit score is low, you\u2019ll be offered a higher interest rate.<\/p>\n

What\u2019s considered a low credit score? According to Bank of America<\/a>, lenders generally consider 670 or above to be a good credit score. If your credit score is lower than 620, you may have a hard time getting a mortgage. In that case, you might want to ask your lender if it would be worth waiting a few months while you work to improve your credit so you can get a better interest rate.<\/p>\n

Consider, too, that 15- or 20-year mortgages will come with lower interest rates than the standard 30-year mortgage. For example, a $300,000, 30-year mortgage might be available at a 4% interest rate while a 15-year mortgage for the same amount would have a 3.25% interest rate<\/a>.<\/p>\n

Step 4: Evaluate housing<\/h2>\n

The next step in determining how much home you can really afford is to take a look at how much homes cost in the area where you want to buy. Remember that in addition to the purchase price of the home, you\u2019ll also pay property taxes and homeowner\u2019s insurance<\/a> with your mortgage \u2014 and mortgage insurance, too, if you\u2019re putting down less than 20%.<\/p>\n

If the neighborhood that you\u2019re interested in has a homeowner\u2019s association<\/a> (HOA), as more than 40 million households do, be aware that HOA fees can run you from a few hundred dollars a year to a few hundred dollars every month<\/i>. Keep in mind, too, that if you\u2019re looking at a home with an HOA, lenders will include the HOA fees in their assessment of how much home they think you can afford to buy<\/a>.<\/p>\n

Finally, consider how much money you will put down on your home. If you put less than 20% down, you\u2019ll likely have to pay mortgage insurance, which is calculated as a percentage of the loan amount.<\/p>\n

\u201cGet with your licensed agent who can speak to additional expenses you might expect in your area,\u201d says Ludecker.<\/p>\n

In addition to the ongoing costs of paying for and insuring a home, there are one-time costs to consider.<\/p>\n

\u201cA buyer should definitely budget for a home inspection and any other inspections<\/a> that aren\u2019t being paid for by the seller.\u201d Those might include termite inspections, septic inspections, or HVAC inspections, Ludecker says.<\/p>\n

\"Figure<\/a>
Source: (RATTA LAPNAN \/ ShutterStock)<\/figcaption><\/figure>\n

Step 5: Determine your maximum comfortable monthly mortgage payment \u2026<\/h2>\n

Before you begin house hunting, you\u2019ll need to know the maximum amount you\u2019ll want to pay for a mortgage every month, including taxes, insurance, and interest.<\/p>\n

\u201cSome people don\u2019t want to spend everything they could spend,\u201d says Ludecker. \u201cTalk to a trusted financial adviser about how the mortgage payment would work within your monthly budget.\u201d<\/p>\n

Step 6: \u2026Then work backward from there<\/h2>\n

Though you might get pre-approved for an eye-popping amount of money, you probably don\u2019t want to shop at the very top of your price range or approval amount. If you do, you risk becoming house poor<\/a> down the line.<\/p>\n

Ludecker says that she has had deals die because a buyer begins shopping for homes in the range that they are pre-approved for, but when they sit down and crunch the numbers, they learn they don\u2019t want that kind of payment every month.<\/p>\n

\u201cAddress the mortgage payment early in the process so nobody spins their wheels and wastes time and emotional energy,\u201d she advises.<\/p>\n

As a final tip, Ludecker also points out that when buyers are in the process of shopping for a home they should not go out and make any other large purchases \u2014 like cars or furniture \u2014 because doing so might change their financial situation and jeopardize their lending.<\/p>\n

\u201cIf you start buying furniture for a home you haven\u2019t bought yet, you may not qualify for the same amount of money,\u201d she warns.<\/p>\n

\u201cYou don\u2019t want to change your financial picture before closing day. Be consistent and careful during the buying process.\u201d<\/p><\/blockquote>\n

Follow these steps, and you\u2019ll be able to determine how much house you can really afford before you start shopping \u2014 ensuring you find the house of your dreams that\u2019s also within your budget.<\/p>\n

Header Image Source: (Breadmaker \/ ShutterStock)<\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

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