How Much House Can I Afford? Start With a Comfortable Payment

Your approval is not your household budget

A lender evaluates the information required for a loan decision. You know the parts of life that may not fit neatly into that calculation: childcare, helping family, travel, uneven income or a savings goal you do not want to give up. Write those commitments down before choosing your maximum payment.

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Calculate a mortgage payment with taxes and insurance

A listing’s advertised payment can leave out costs that still come out of your account. Ask for an itemized estimate for the actual property. Keep housing costs separate from car loans, student loans and other obligations, then add them together to see the full monthly picture.

• Principal and interest on the mortgage.
• Property taxes and homeowners insurance.
• Association dues and mortgage insurance, if applicable.
• Bills paid outside escrow and a separate allowance for irregular expenses.

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A hypothetical comfort check

Suppose you bring home $7,000 each month. A $2,800 total housing cost leaves $4,200 for everything else. If your other spending, debt payments and planned savings total $3,700, your remaining room is $500. That is arithmetic, not a recommendation that $2,800 is right for you. An irregular expense could use the remaining $500 quickly.

Test the plan before committing

Try the proposed payment in your current budget. Set aside the difference between your current housing cost and the proposed amount when practical. Also ask what happens if insurance rises or one income changes. If the plan only works with a future refinance or a raise that has not happened, revisit the price, down payment or timing.

Keep three numbers together

Ask for your total monthly payment, estimated cash to close and cash remaining afterward on the same page. A smaller payment that empties your savings can create a different problem. A good purchase plan should leave you understanding the tradeoff, not just looking at a maximum approval.