Understand What You Can Afford: A Homebuyer's Guide to Smart Budgeting

Buying a home is one of the biggest financial decisions you’ll ever make—so knowing what you can truly afford is the key to a confident and successful purchase. Before falling in love with that dream kitchen or perfect backyard, it’s important to understand your budget and how much house makes sense for your lifestyle and finances.

Here’s how to figure out what you can afford—and avoid surprises down the road.

1. Start With Your Monthly Budget

Take a close look at your current income and expenses. A simple monthly budget will help you determine how much you can comfortably spend on a mortgage payment without stretching your finances too thin.

Ask yourself:

• What is my monthly take-home pay?

• How much do I spend on utilities, groceries, transportation, subscriptions, etc.?

• How much am I saving each month?

• What other debts do I have (student loans, car payments, credit cards)?

Tip: Many experts suggest spending no more than 28–30% of your gross monthly income on housing.

2. Calculate Your Debt-to-Income (DTI) Ratio

Your DTI ratio is the percentage of your monthly income that goes toward paying debts. Lenders use this to determine how much mortgage you qualify for.

How to calculate:Add up your monthly debt payments ÷ gross monthly income × 100

Most lenders prefer a DTI below 43%, with some aiming for 36% or lower. A lower DTI means you’ll qualify for better mortgage terms.

3. Determine Your Down Payment

How much you put down affects what you can afford and what you’ll pay monthly.

• Conventional loan: 5–20% down

• FHA loan: As little as 3.5% down

• VA/USDA loans: May offer 0% down options (if you qualify)

A bigger down payment reduces your monthly payment and may eliminate the need for private mortgage insurance (PMI).

4. Factor In the Extra Costs of Homeownership

Owning a home means more than just the mortgage. Be sure to budget for:

• Property taxes

• Homeowners insurance

• PMI (if your down payment is under 20%)

• HOA fees (if applicable)

• Utilities and maintenance

These costs can add hundreds to your monthly payment, so be realistic.

5. Get Pre-Approved for a Mortgage

A mortgage pre-approval gives you a clear idea of how much a lender is willing to offer—and shows sellers you're a serious buyer.

Your lender will review your:

• Income and employment history

• Credit score and report

• Bank statements and assets

• Debt obligations

Pro tip: Just because you're approved for a certain amount doesn't mean you should spend it all. Stick with a number that fits your comfort zone.

6. Use Online Mortgage Calculators Wisely

Mortgage calculators can help you estimate your monthly payment based on:

• Purchase price

• Down payment

• Interest rate

• Loan term

• Taxes and insurance

But remember—they’re estimates. Always talk to a real estate professional or lender for accurate numbers based on your unique situation.

7. Work With a Trusted Real Estate Agent

Understanding what you can afford is just one step. A great real estate agent will help you stay on budget and find homes that meet your financial goals.

• Guide you through every step of the homebuying process

• Connect you with reliable lenders and financial resources

• Help you make competitive, smart offers within your price range

We’ll make sure you’re not just buying a house—you’re making a wise investment.

Ready to Start House Hunting with Confidence?

Knowing what you can afford is the first step to finding a home you love—without the financial stress. With a little planning and the right team on your side, your dream home is within reach.