How Much House Can (No, Should!) You Afford?

Updated: Mar 17

Quick and easy 6-step plan to determine your new house budget

Icon of a house on a stack of money, next to a car

How much should really spend on your new house? We have six steps.

In the market to buy a house? Awesome! Let’s get one thing straight. It’s not how much house can you afford. It’s how much house should you afford.

Already got your pre-approval loan letter? Cool! You’ve heard back from the bank, and all of a sudden, you’re a millionaire! The bank has pre-approved you for a stupid-awesome amount. You barely close the email and you’re already Zillow-ing mcmansions and considering hiring a butler.

But wait!

Just because the bank is willing to bet you can pay them back for that loan on your mortgage, are you entirely sure what that even looks like?

First thing’s first. Just like trying on wedding gowns, you only try on ones you can afford. Because, if not, all of sudden you’re sitting in a pool of tears, bridal salon champagne and wrinkled tulle (that you can’t afford). Buying a house is a crazy-emotional concept. As soon as you find that dream house, it can be hard to tear yourself away and fall back to reality. Before you fall in love, your first move is setting a budget.

Consider these six tips when determining your realistic new home budget.

1) Your mortgage should fall between 2-3 times your annual salary (or less!). If you and your spouse have a combined household income of $100K, you shouldn’t look at houses that exceed $200-300K. That is, unless you’re a master negotiator! In which case, call on that mcmansion and haggle your way down to your budget.

2) You should plan on spending between 25 to 30 percent of your monthly budget toward your mortgage. Don’t forget you still need to eat! And afford gas, your gym membership, dog food, cell phone, etc. Not every penny can realistically go toward your house.

3) Your total debt should not exceed 36 percent of your annual income. Remember that four-letter-word, “debt”? Yeah, we’re talking house, car, college loans—all that good stuff. Take account of all your debt against your annual income and ensure you’re falling within the safe range.

4) Have enough cold hard cash for your down payment. We recommend paying up front for at least 20 percent of your home sale price.Yes, you can get a mortgage with 10 down, but our recommendation is to stretch yourself here. Saving for that 20 percent down payment is a great financial exercise in itself before owning the home. With a 20 percent down payment, you’ll drive down your interest rates, monthly mortgage payment and have some extra cash to throw toward your other debt, entertainment fund or retirement (hello retirement savings, almost forgot about you ).

5) Don’t forget about closing costs. Woohoo! You’ve made it through inspection and now you’re officially closing. You’re not out of the woods yet. Zillow reports that, on average, people pay $3,700 in closing fees, or in other words, between 2 and 5 percent of their home price.

6) Set some cash aside for the move. Moving ain’t cheap! Set aside $1-2K for moving expenses like moving trucks, boxes, cleaning supplies, professional movers, etc. Part of that pot o’ money can go toward new furniture to fill your new house, too.

Want to stretch your home budget? Consider what you can sacrifice. Just think: skipping dinners out and cutting down on your non-essential purchases (ahem, we’re looking at you, fantasy football and new wardrobe) can get you closer to that dream house.

Remember, just because you can technically afford that down payment and monthly mortgage, think about how that will feel. What will you have to skip? What luxuries are you accustomed to that you’ll have to forego?

Now that you have your budget in order, now comes the fun part! Whip out that phone and start swiping through homes. Good luck!

Psst. Next, take a look at how to manage that mortgage.

Great news! The Pocketnest app is now available! Download Pocketnest and get your finances in order—in just 10 minutes a month! No jargony finance-speak, pricey fees or in-person meetings required.