How Much House Can I Afford?

Updated 4/25/2024

If you're like most Americans, housing is the single biggest — and most important — line item in your family's budget. When it comes time to buy a home, you'll hear a lot of conventional wisdom, some of it contradictory, about how much you can afford to spend on housing. But how much home can you actually afford? We'll break down some common rules and let you know what to consider when determining what you should spend on housing.

Conventional Wisdom, And What It Means For You

Conventional wisdom dictates that you should spend no more than 28 to 30 percent of your monthly gross income on housing. For homeowners, that 30 percent number should include not just mortgage payments, but all costs of home ownership including HOA fees, mortgage interest, property taxes and maintenance. 

According to data from the U.S. Census Bureau, this standard has been employed in the United States since 1981 and is used for everything from determining whether Fannie Mae or Freddie Mac would purchase a mortgage to determining the percentage of Americans who are considered "cost-burdened" by their living expenses. 

However, this one-size-fits-all approach has its limits. Actually determining how much is right for you to spend on housing depends on a number of factors such as location, transportation, student loans, downpayment and your other goals. For example, if you're trying to maximize your retirement savings or put kids through college, spending less on housing might be a major priority. These decisions are personal and will vary by buyer and market. 

Interest Rates And Their Impact On Home Affordability

Interest rates have a significant impact on the buyer's "purchasing power," or the value of the home you can buy with each dollar you have to invest. While timing any market is risky, securing a mortgage when interest rates are low reduces your monthly homeownership cost. Understanding where interest rates are and where they are expected to go can make a major difference in the home you can purchase. Discussing your needs and resources with experienced, knowledgeable professionals can help you maximize each dollar you spend. 

Hidden Costs Of Home Ownership

Once you have a general sense of how much you can afford to spend monthly, a payment calculation tool like this mortgage calculator can help you work backward to determine how much you can afford to borrow.  Of course, your mortgage payment is only the first step in calculating your monthly housing costs. 

You'll also need to factor in the other, less obvious costs of home ownership. Some of these hidden costs, such as the HOA or condo association payment, property taxes, homeowners insurance and mortgage insurance, are predictable and regular. Others like maintenance, home repairs or replacement of home systems like heating or electrical systems, are intermittent and difficult to budget for. Factoring these costs into your estimated monthly cost for home ownership can help you to be better prepared when unexpected costs arise. 

When Home Means More, You Need a Team With More to Offer

Is your home working for you? For many of us, the way we think about our homes has changed — and that might mean you're ready to make a move to find one that better fits where you are now.  Home is about so much more than just four walls. Buying or selling a home is a big deal, and our homes have never been more important. That's why your local Baird & Warner agent is with you at every step of the way, with the tools and support you need to make your real estate journey easier — including in-house connections with local experts in mortgage and title. So whether you're looking for your starter home or you're ready to move on from one, your Baird & Warner agent can help you through every part of the buying and selling process.