Blogging for Change

How Much House Can I Afford?

by Jesse Campbell on
8/25/2025
in Housing and Homeownership
Young family unpacking in new house.

Despite all the obstacles, owning a home remains an American dream. And while it seems like it's gotten harder and harder for young families to buy a house of their own, it's far from impossible.

Before you begin the home buying process, however, it’s vitally important that you understand exactly how much money you can afford to spend on a house. While it can be a bit heartbreaking to find the home of your dreams, only to discover that's out of your price range, it's considerably worse to actually buy a house and then find out that you can't actually afford to live there.

So how to go about setting your homebuyer price range?

Determine how much mortgage you qualify for

Since you're probably not in a position to buy a house with cash, you're going to need to take out a mortgage. How much someone is willing to loan you depends a lot of factors, but when buying a home, the two most important tend to debt-to-income ration and how much of a down payment you can afford.

Debt-to-income ratio

Your debt-to-income (DTI) ratio represents the amount of your income that's dedicated to debt payments. If too much of your income is wrapped up in debt payments, there's an increased likelihood that you'll struggle to manage your debt payments.

Lenders often consider both the ratio of your housing costs to your income (sometimes called your front-end ratio) and the ratio of all of the debts (including housing costs) to your income (your back-end ratio).

  • Front-end ratio: Your monthly housing expenses, including your mortgage, taxes, and insurance should be no more than 28-31% of your gross (pre-tax) monthly income.
  • Back-end ratio: In general, lenders want your total debt-to-income ratio – which includes things like credit card debt, child support payments, and student loans, on top of your new housing costs – to be no more than 36-43% of your gross monthly income.

Down payment

A down payment is the amount you pay upfront when purchasing a house (or any big ticket purchase). A bigger down payment means that you start out with more equity and the lender starts out with less risk. And the less risk a lender is faced with, the better the terms they're willing to offer.

The ideal amount for a down payment is 20% of the sale price. If you can't cover the 20% upfront, you may have to pay private mortgage insurance (PMI) until you've built up enough equity, and that can be costly. Other loan programs may require lower down payments, but the tradeoff is often higher monthly payments. 

In other words, if you don't have 20% of the asking price of a home saved up, you may want to shop for a less expensive home, or wait a bit longer until you have the necessary funds. 

Determine what kind of monthly payment you can afford

A $500,000 mortgage can feel huge, but that kind of number can also feel abstract, especially when you're trying to figure out your monthly budget.

While your expenses may change after buying a home, your income likely won't. That's why it's important to make sure that your new mortgage payment (on top of all of your other payments) will be affordable. What's affordable to you is highly dependent on your income and your lifestyle.

If you're looking for a rough guideline, though, we recommend not taking on a monthly mortgage payment that exceeds 25% of your take-home pay. In other words, if your monthly household income after taxes is $5,000, you should aim for a mortgage payment of no more than $1,250. You can go higher (and may have to, depending on where you live), but 25% is usually the sweet spot for a manageable payment that allows you to build savings and comfortably deal with unexpected expenses.

Understand the non-mortgage costs of owning a home

One of the many reasons why some people prefer to own a home instead of rent an apartment is that the money you spend on your mortgage payment each month goes toward creating equity in your home. It's a form of investment and should you someday sell your home, you'll get some of that money back. You might even make money in the process. Money spent on rent, however, doesn't earn you any equity.

But what rent often does get you, however, is maintenance. It gets you repairs for normal wear and tear. If a pipe bursts and the ceiling in your apartment needs to be replaced, it's going to cost a lot of money – but it won't cost you a lot of money. 

So while your mortgage will almost certainly be your biggest expense as a homeowner, it won't be your only expense. You'll also have to account for:

  • Property taxes
  • Homeowners' insurance
  • Water, trash, and recycling bills
  • Plumbers and HVAC specialists
  • Lawncare and tree trimming
  • Security systems
  • And more

Those costs will all be different depending on where you live and various aspects of the house you ultimately buy, but it's important that you consider those costs and how they'll all fit into your budget before you start house-hunting. 

Owning a home is a great joy for many people, but it can be a terrible challenge when the cost of living in a house is more than you can afford. Do your research and happy house-hunting!

Need help getting the "debt" part of your debt-to-income ratio in check? MMI offer personalized debt relief solutions to meet your unique needs. MMI clients get out of debt 7x faster than doing it alone and save thousands in the process.

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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