How much house can I afford? Start with your budget

How it works

Principal and interest are only part of ownership. Add property tax, insurance, mortgage insurance when applicable, association dues, utilities, and a repair allowance. Upfront cash also includes closing and moving costs. Lender approval reflects underwriting rules; it does not account for every goal or expense in your personal budget.

A worked example

Suppose take-home pay is $5,000 monthly, nonhousing essentials and debt payments are $1,900, and planned saving is $600. That leaves $2,500 before discretionary spending and extra reserves. If full housing costs are $2,300, only $200 remains for those other needs. The arithmetic suggests examining a lower-cost scenario even if a lender would approve the loan.

What to compare

Test different rates, down payments, taxes, and insurance quotes using the same income assumptions. Keep cash to close separate from the post-purchase reserve. Then test an expensive repair or temporary income reduction. Property-specific quotes are more useful than broad national estimates, especially where insurance or taxes change quickly.

A common mistake to avoid

A rule based solely on annual salary can conceal childcare, medical costs, existing debt, and irregular earnings. Avoid assuming future salary increases or a refinance will make an initially strained payment comfortable. Choose an affordability range that works under present conditions and review the actual Loan Estimate before committing.

Is the lender’s maximum my housing budget?

It is a lending decision, not a complete household budget. Compare the proposed payment with take-home income, savings goals, and costs that underwriting ratios omit.

Sources and further reading

• CFPB: Decide how much you want to spend on a home
• CFPB: All the costs of buying a home

Connect this to inflation

Inflation changes the spending power of money over time. Read the related inflation explainer, or compare dollars across years using your own assumptions.