How Much House Can You Really Afford?

One of the first questions almost every buyer asks me is:

"How much house can I afford?"

It's a great question. But after helping buyers through this process, I've found there's an even better one.

"How much home fits comfortably into my life?"

Those two questions might sound the same, but really they often lead to very different answers.

A lender's job is to determine the maximum amount they're willing to loan you.

My job is to help you decide what makes sense for your life.

Just because someone is willing to lend you more money doesn't automatically mean you'll be happier spending it.

Buying a home should bring peace of mind—and the goal is to do that without financial stress.

Affordability Is More Than a Mortgage Payment

When people first start looking at homes, it's easy to focus on one number:

"Can I afford the monthly payment?"

The truth is, owning a home comes with more than just a mortgage.

Your monthly housing costs may include:

  • Principal and interest
  • Property taxes
  • Homeowners insurance
  • Mortgage insurance (PMI), if required
  • HOA dues

Then there are the expenses that don't show up on a mortgage calculator:

  • Utilities
  • Lawn care
  • Home maintenance
  • Repairs
  • Furniture
  • The occasional trip to the hardware store because something decided to break at the worst possible time.

None of these should scare you. They're simply part of homeownership, and planning for them now makes them much easier to handle later.

Here's What Most Lenders Look At

Now let's talk about the numbers.

If you've talked with a lender before, you've probably heard the term Debt-to-Income Ratio, or DTI. It sounds complicated, but it's really just a simple way of comparing what you earn each month to what you already owe.

One guideline you'll hear lenders talk about is what's called the 28/36 Rule

Here's what that means in plain English.

Ideally:

  • About 28% of your gross monthly income goes toward housing expenses.
  • About 36% goes toward all of your monthly debts combined.

Housing expenses include things like:

  • Mortgage
  • Property taxes
  • Homeowners insurance
  • HOA dues
  • Mortgage insurance, if required

Your total debts include those housing costs plus:

  • Car payments
  • Student loans
  • Credit cards
  • Personal loans
  • Any other required monthly debt payments

But remember that this is a guideline and it should never be considered a law.

Many buyers qualify with higher debt ratios depending on the loan program, credit profile, and overall financial picture.

But qualifying and feeling comfortable aren't always the same thing.

Let's Walk Through an Example

Let's say your household earns $120,000 per year.

That works out to:

$10,000 in gross monthly income.

Most lenders begin with the traditional 28/36 guideline.

Step 1: The 28% Housing Guideline

The front-end ratio suggests that no more than 28% of your gross monthly income should go toward your housing payment.

$10,000 × 28% = $2,800

That $2,800 includes:

  • Principal & Interest
  • Property Taxes
  • Homeowners Insurance
  • Mortgage Insurance (if required)
  • HOA dues (if applicable)

So, based on income alone, a lender may be comfortable with a housing payment around $2,800 per month.

Step 2: The 36% Total Debt Guideline

Now let's look at the second part of the equation.

Most lenders also look at your total monthly debt, including your future mortgage.

Using the same income:

$10,000 × 36% = $3,600

This means your housing payment plus all of your other monthly debt should generally stay around $3,600 or less.

Buyer A

Let's say Buyer A has:

  • Car payment: $450
  • Student loan: $250

Total monthly debt:

$700

The lender subtracts that debt from the $3,600 guideline.

$3,600 − $700 = $2,900

Since the 28% guideline suggested a housing payment of $2,800, Buyer A is still limited by the lower number.

Estimated comfortable housing payment: $2,800/month

Buyer B

Now let's look at another buyer with the exact same income.

Buyer B has:

  • Car payment: $850
  • Student loans: $500
  • Credit cards: $350

Total monthly debt:

$1,700

Now the calculation changes.

$3,600 − $1,700 = $1,900

Even though Buyer B earns exactly the same salary as Buyer A, their existing debt reduces the amount available for a mortgage.

Estimated housing payment: $1,900/month

What This Means

Both buyers earn $120,000 per year.

Both have good jobs.

But one may qualify for a significantly larger mortgage simply because they have less existing debt.

That's why you'll sometimes hear friends say,

"We make the same amount, but they qualified for a much more expensive house."

Income is only part of the equation.

One thing I've noticed is that buyers sometimes compare themselves to friends or family and wonder why they qualified for a different loan amount. The truth is, there isn't one number that determines what you can afford. Income matters, but so do your monthly debts, your credit history, the type of loan you're using, and even the size of your down payment. That's why it's important to focus on your own financial picture instead of comparing it to someone else's.

Here's What I Tell My Buyers

This is one reason I encourage buyers to talk with a lender before they start shopping for homes.

Sometimes paying off a credit card or waiting until a car loan is nearly paid off can increase your buying power. Other times, it's smarter to keep your cash in savings and buy now.

Every situation is different, which is why it's helpful to look at the complete financial picture instead of focusing on one number.

One of the best things you can do is talk with both a lender and a Realtor early in the process. Even if you're months away from buying, you'll have a much clearer picture of where you stand and what steps will help you reach your goals.

Don't Forget the Costs That Come Later

One of the biggest surprises for first-time buyers isn't buying the home.

It's everything that happens after closing.

Most homeowners eventually replace:

  • Water heaters
  • Appliances
  • Roofs
  • Fences
  • HVAC systems

That doesn't mean you'll be writing big checks every year.

Some years you may spend very little. Then one day the water heater stops working or the roof needs attention. Planning ahead means those repairs become manageable instead of stressful.

A common planning guideline is to budget around 1% to 2% of your home's value each year for maintenance and repairs.

For a $500,000 home, that's about $5,000 annually, or roughly $417 each month if you set money aside over time.

Think of it as building your own home emergency fund.

Your Lifestyle Matters More Than the Formula

This may be the most important part of this guide.

Buying a home shouldn't force you to give up everything else you enjoy.

Ask yourself:

  • Will I still be able to save money?
  • Can I still take vacations?
  • Will I have an emergency fund?
  • Am I comfortable if unexpected expenses come up?
  • Will this payment still feel manageable a few years from now?

A mortgage calculator can't answer those questions.

Only you can.

A Quick Budget Check

Before you start touring homes, take a few minutes to write down:

□ Annual household income

□ Current monthly debts

□ Desired monthly housing payment

□ Monthly savings goals

□ Estimated utilities

□ Estimated maintenance costs

□ HOA dues, if applicable

□ The payment that lets you enjoy your new home—not just afford it

You'll probably learn more from this exercise than you will from spending an hour on mortgage calculators.

Buying Tip from Derek

One thing I've learned is that most buyers don't regret purchasing a home that's comfortably within their budget. What they appreciate is the peace of mind that comes from knowing they still have room for everything else that's important in life.

Life happens. Cars need repairs. Homeowners eventually replace water heaters, roofs, and appliances. Your priorities may change, your family may grow, or you may simply want the flexibility to take a vacation or keep building your savings.

That's why I encourage my buyers to think beyond what they can afford and focus on what they'll be comfortable living with month after month.

I've found that the happiest homeowners aren't always the ones who bought the biggest house—they're the ones who bought a home that fit both their budget and their lifestyle.

That's why I believe your budget should support your lifestyle—not define it.

 

Frequently Asked Questions

Should I buy the most expensive home I qualify for?

Not necessarily. Your lender is calculating what you can borrow. Only you can decide what feels comfortable month after month.

Should I pay off my car before buying?

Sometimes it helps. Sometimes it doesn't. It depends on your overall financial picture and the loan program you're using. That's a great conversation to have with your lender before making any big financial moves.

Does a higher credit score help?

Yes. In many cases, a stronger credit score can qualify you for a better interest rate, which may increase your buying power by lowering your monthly payment.

What's Next?

Now that you've built a realistic budget, the next question becomes:

How much money do you actually need before you can buy a home?

In the next guide, we'll break down:

  • Down payments
  • Earnest money
  • Closing costs
  • Cash reserves
  • Programs that may help reduce your upfront costs

Many buyers are surprised to learn they don't need as much cash as they expected.

A Note from Derek

Every buyer's situation is different, and that's one of the reasons I enjoy this business so much. No two families have the same goals, priorities, or financial picture.

This guide is meant to give you a solid foundation, but it can't replace a conversation about your specific situation.

Whether you're planning to buy in the next few months or you're just beginning to explore the idea, I'm always happy to sit down, answer your questions, and help you build a plan that makes sense for you.

There's no pressure and no obligation—just honest advice to help you move forward with confidence.