Before you start looking at houses, look at your paycheck. My starting point is to keep the total monthly housing payment at or below 25% of your take-home pay on a 15-year fixed-rate mortgage. That gives the rest of your budget room for groceries, saving, giving, and all the things you want to do after you move in.
Start with the monthly payment
Take your monthly income after taxes and multiply it by 0.25. If you bring home $6,800 a month, your starting ceiling is $1,700. Use dependable income. If overtime, bonuses, or commissions vary, see whether the payment fits in a lean month.
Count principal, interest, property taxes, homeowners insurance, any required mortgage insurance, and HOA dues. Leave separate room in your budget for utilities, maintenance, and repairs. If those costs make your budget feel tight, set a lower payment target.
Work backward to a home price
Start with your payment ceiling, subtract the costs that come with the specific house, then see how much is left for principal and interest. That is the part of the payment that determines how much you can borrow.
One example with $6,800 in take-home pay
25% of take-home pay $1,700
Estimated property taxes $250
Estimated homeowners insurance $100
HOA dues and mortgage insurance $0
Available for principal and interest $1,350
At an illustrative 6% fixed rate over 15 years, $1,350 a month in principal and interest supports a loan of about $160,000. Add a $40,000 down payment and you’re looking at a home around $200,000. That’s a 20% down payment in this example. Use actual quotes and property costs for any home you’re considering.
Now suppose another home has $100 a month in HOA dues. With everything else the same, you have $1,250 left for principal and interest. That supports about $148,000 in borrowing, so the same down payment puts you around $188,000 before checking whether mortgage insurance applies.
Check the cash you’ll need to buy
I’d pay off consumer debt and have three to six months of essential expenses saved before buying. Keep that emergency fund separate from your down payment. Set aside cash for closing costs, moving, and immediate repairs. With a conventional loan, putting 20% down typically helps you avoid private mortgage insurance. Ask the lender for a Loan Estimate so you can compare the payment and cash needed at closing.
Give yourself room to live in the house
Run the numbers before you fall in love with a listing. Try the payment in your budget and see what’s left for the rest of your goals. If it feels tight on paper, lowering your price range now gives you more room every month after closing.
Try the How Much House Can I Afford calculator
