Mortgages & Home Loans What House Can I Afford? By Miriam Caldwell Miriam Caldwell Miriam Caldwell has been writing about budgeting and personal finance basics since 2005. She teaches writing as an online instructor with Brigham Young University-Idaho, and is also a teacher for public school students in Cary, North Carolina. learn about our editorial policies Updated on June 1, 2022 Reviewed by Margaret James Reviewed by Margaret James Peggy James is an expert in accounting, corporate finance, and personal finance. She is a certified public accountant who owns her own accounting firm, where she serves small businesses, nonprofits, solopreneurs, freelancers, and individuals. learn about our financial review board It can be difficult to determine how much you can afford to borrow when purchasing a home. With several factors in mind (your credit, income, spending, and your down payment), there are a few rules of thumb to follow. And while these rules are more financially conservative, they can help prevent things like foreclosure or being house poor, which basically means not be able to do the other things you really enjoy doing because so much of your income is going towards your house payment. Follow these steps to determine how much you can spend on a home. The 25 Percent Rule Caiaimage / Paul Bradbury / Getty Images One of the most basic guidelines that some experts point to when advising people on purchasing a home is that your house payment should not be more than 25% of your monthly income. However, data from the Bureau of Labor Statistics show that most homeowners with children under the age of six in the U.S. actually spend 36.3% of their income on housing costs, which includes mortgages. Keep in mind that the 25% rule isn't a hard-and-fast one. You should consider your individual financial situation. For example, do you have a high amount of student debt or other debt? In that case, you may want to shoot for a lower percentage of your income when buying a home. Note It is important to realize that the banks may be willing to lend you more money than you can really afford. It is up to you to determine the right amount for your budget. Set Your Budget Before You Start Shopping Before you start shopping for a new home, work out a budget with a potential house payment included. This is to ensure that you can actually afford to pay your mortgage each month. In addition to your mortgage, you'll also need to factor in home insurance, taxes, and home repairs or upgrades, and maintenance. A report by Anji found that in 2021, consumers spend an average of $3,018 on home maintenance and $10,341 on home improvements. This is another reason why you don't want to overextend yourself with your mortgage payment. Work with a Professional When determining how much you can afford to spend on a home, it's wise to work with a professional. Consider the advice of your financial advisor on whether or not you are ready to buy a home and how much you can realistically afford. You should also consider your debt-to-income ratio when considering how much to borrow for a new home. Remember, your debt-to-income ratio is the amount of all your monthly debt payments (like your mortgage, credit card payment, car payments, student loan payments), divided by your gross monthly income. Note Studies have shown that homeowners with a higher debt-to-income ratio are more likely to have trouble making their mortgage payments. You should also talk to the loan officer at your local bank or credit union or mortgage servicer. They can help you determine the mortgage that you can afford, plus what you'll need during the application process. Other Considerations In addition to the down payment, you will need to have money set aside for the closing costs. While it depends on the price of the house, realtors' fees, and other factors, typically, you should expect to pay between 3-5% of your home's purchase price on closing costs. You should also exercise caution when considering the type of mortgage you choose. Generally speaking, you should choose a fixed-rate mortgage, not an adjustable-rate mortgage. Here's why: while a fixed-rate mortgage's interest rate stays the same throughout the life of the mortgage, with an adjustable-rate mortgage, that amount can go up or down. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Bureau of Labor Statistics. "Married Couples With Oldest Child Under Age 6 Spent 36.3 Percent of Total Expenditures on Housing." Angi. "The State of Home Spending."