Buying a home can be lots of fun. It’s exciting to see all those years of dreaming come to life in a place you can finally call your own. With so many possibilities at your fingertips, it’s easy to get caught up in the excitement before asking yourself the most important question of all: How much house can I afford? It doesn’t matter if the kitchen is fabulous or the backyard is big. If you can’t pay the mortgage each month or find the cash to fix what’s broken, your home will be a burden—not a blessing.

1. DAV E R AMSE Y . CO M
HOW MUCH HOUSE
CAN I AFFORD?

2. Buying a home can be lots of fun. It’s exciting to see all
those years of dreaming come to life in a place you can
finally call your own.
With so many possibilities at your fingertips, it’s easy to
get caught up in the excitement before asking yourself the
most important question of all: How much house can I
afford? It doesn’t matter if the kitchen is fabulous or the
backyard is big. If you can’t pay the mortgage each month
or find the cash to fix what’s broken, your home will be a
burden—not a blessing.
Figuring out how much house you can afford doesn’t
have to be rocket science. Here are some tips to help you
buy a home within your budget.

3. 1. Add up any income you bring in each month.
Let’s say you bring home $2,400 a month and your
spouse makes $2,600 a month. Your total monthly take-
home pay would be $5,000.
2. Multiply your monthly take-home pay by 25% to get
your maximum mortgage payment.
If you earn $5,000 a month, that means your monthly
house payment should be no more than $1,250. The
calculator below will show you a ballpark figure for how
much house you can afford based on your down
payment amount and maximum house payment.
Calculate the Costs
By simply crunching a few
numbers, you can figure out
how to buy a home that
won’t bust your budget.
Follow the steps below to
determine how much house
you can afford, and then go
over the results with your
spouse. You bo

4. 3. Use our mortgage calculator to determine your budget.
Sticking with our example of an income of $5,000 a month, you could afford these options on a 15-year fixed-rate mortgage:
$187,767 home with a 10% down payment ($18,777)
$211,238 home with a 20% down payment ($42,248)
$241,415 home with a 30% down payment ($72,424)
$281,650 home with a 40% down payment ($112,660)
Remember though that this is an estimate. Don’t forget that property taxes and homeowner’s insurance will affect your monthly
payment. Our mortgage calculator is an easy way to see how those costs will impact your home-buying budget.
For example, if you plug in a mortgage amount of $211,238 with a 20% down payment, you’ll find that your maximum monthly payment
of $1,250 increases to $1,515 when you add in $194 for taxes and $71 for insurance. To get that number back down to a monthly
housing budget of $1,250, you’ll need to lower the price of the house you can afford to $172,600.
Use the calculator to try out other combinations to find the right mortgage amount, interest rate and down payment combo that will
work for your budget.
4. Factor in homeownership costs.
Your emergency fund can cover major home disasters. But if you’ll be paying homeowner association fees or saving up for a few home
upgrades, you’ll need to build room in your monthly budget for those expenses. Just be sure they don’t take away from bigger financial
goals—like saving for retirement.
Be sure to figure homeownership expenses in your monthly budget. These costs may include:
Utilities
Ongoing maintenance and repairs
Furniture and décor

5. Maximize Your Down Payment
Your down payment plays an essential role in determining how much home you
can afford. The more cash you put down, the less money you’ll need to finance.
That means lower mortgage payments each month and a faster timeline to pay
off your home loan! Just imagine a home with zero payments!
The best way to buy a home is with 100% cash. But most people don’t want to
postpone homeownership until they can pay cash. To get a better interest rate—
and to keep from financing 100% of the cost of your home—you need to put at
least 10% down. A 20% down payment is even better; when you put 20% down,
you aren’t required to pay private mortgage insurance (PMI). PMI protects the
mortgage company in the event you don’t make your payments and they have to
take back the home (foreclose). It usually costs 1% of the total loan value and is
added to your monthly payment.
PMI may change how much house you thought you could afford, so be sure to
include it in your calculations if your down payment will be less than 20%. Or, you
can adjust your total home price range so you can put down at least 20% in cash.
Want to learn more about how to save up a down payment on a house fast? Our
5-Day Home-Buyer Savings Plan will help you discover simple tricks to save a five-
figure down payment by this time next year!
Don’t Forget About Closing Costs
A down payment isn’t the only cash you’ll need to save up to buy a home. On
average, closing costs are about 4% of the purchase price of your home.(1) Your
lender and real estate agent will let you know exactly how much your closing costs
are so you can pay for them on closing day. These costs cover important parts of
the home-buying process, like appraisal fees, home inspections, credit reports,
attorneys and homeowner’s insurance.
Don’t forget to factor your closing costs into your overall home-buying budget. If
you’re purchasing a $200,000 home, multiply that by 4% and you’ll get an
estimated closing cost of $8,000. Add that amount to your 20% down payment
($40,000), and the total cash you’ll need to purchase your home is $48,000.
If you don’t have the additional $8,000 for closing costs, you’ll either need to hold
off on your home purchase until you’ve saved up the extra cash, or you’ll have to
shoot a little lower on your home price range. Whatever you do, don’t let the
closing costs keep you from making the biggest down payment possible. The
bigger the down payment, the less you’ll owe on your mortgage!

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