How Much Can You Afford Each Month?

How to Get the Best Mortgage Series

How Much Home Can You Afford? A Step-by-Step Guide

Before you start looking at homes, it’s crucial to determine how much you can comfortably afford each month—not just what you qualify for. Here’s how to figure it out.

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Step 1: Start With Your Budget

Your lender will help determine a price range, but you decide what monthly payment fits your lifestyle. Don’t just accept what they say you can afford—focus on what you’re comfortable with.

Key Tip:
Knowing your monthly payment goal prevents you from wasting time on homes outside your budget.

Budgeting Basics:
If you haven’t already, now’s the time to create a detailed monthly budget. Ask yourself:

• Where does your money go now? Rent, food, travel, car, etc.
• What expenses are must-haves for your lifestyle and happiness?

Be realistic about what you spend and where you can cut back if needed. Also, consider how future expenses, like kids or a new car, could affect your budget.

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Step 2: Breakdown Housing Costs

Here’s what you need to include:

• Home expenses: Property taxes, insurance, maintenance, utilities, HOA fees.
• Other expenses: Car payments, student loans, gym memberships, daycare, etc.
• Maintenance: Save 1% of your home’s purchase price per year (i.e., $3,000 annually for a $300,000 home).

Factor in any tax advantages, like deductions or home equity, which could boost your savings.

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Mortgage Math: Rules of Thumb

Here are some general guidelines to help you:

• Price range: Aim to buy a home priced 2–3 times your gross annual income.
  Example: If you earn $80,000/year, aim for a home priced between $160,000 and $240,000.
• Rent vs. mortgage: You can afford a mortgage that’s 30% more than your rent without changing your lifestyle.
  Example: If you pay $1,500/month in rent, a $2,000 mortgage payment is reasonable.
• 35/45 debt rule: Your mortgage (including principal, interest, taxes, insurance) should be no more than 35% of your gross income, and your total debt (including all other bills) shouldn’t exceed 45%.
  Example: If you earn $80,000/year:
  • 35% rule: $2,333/month for your mortgage
  • 45% rule: $3,000/month for all debts combined

Additional Insight:
For those following Dave Ramsey’s advice, he recommends that your monthly mortgage payment, including property taxes and insurance, should not exceed 25% of your take-home pay on a 15-year fixed-rate mortgage.

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🏠 2025 Conforming Loan Limits

• Baseline limit for one-unit properties: $806,500

These limits are crucial as they determine the maximum loan size that Fannie Mae and Freddie Mac can purchase. Loans exceeding these limits are considered jumbo loans and may have higher interest rates.The Lending Coach+6California Association of Realtors+6Experian+6

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💡 Additional Tips for Buyers

• Consider Future Expenses: Think about potential future costs, such as childcare, education, or healthcare, and how they might impact your budget.
• Emergency Fund: Ensure you have an emergency fund to cover unexpected expenses, which can help prevent financial strain.
• Pre-Approval: Getting pre-approved for a mortgage can give you a clear picture of what you can afford and show sellers that you’re a serious buyer.
• Shop Around: Different lenders may offer varying interest rates and terms, so it’s beneficial to compare options.

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I’m Here to Help

Need help calculating your budget? Reach out to me, and we’ll work through it together. Once you have a solid monthly budget, you can work with a lender to finalize your mortgage and down payment options.

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Next Week:

We’ll cover how much you need for a down payment—don’t miss it! Make sure to complete your budget before then.