• John DeKlerk

How Much of a Home Can I Afford?

How many of you have been guilty of wanting to "Keep up with the Jones", having the biggest house on the block, with the biggest lot, and the nicest amenities. You might prefer something a little more elegant, or simple, or even a fixer-upper like myself. But the main questions are where, when, and how much money you'll need. The question we are going to focus on is how much money you'll need. We will talk about smart decision making when deciding on a budget for your next home.

So, let's get down to brass tax. How much of a home can I really afford? The best answer I can give you is to visit your local bank or a mortgage lender to get preapproved. I'll include a few people and organizations at the end of this blog who I would recommend giving a call. In the meantime, there are a few simple strategies that you can do on your own that will prepare you the most for these big decisions.

The 28%/36% rule - what it is and why it matters

To calculate "how much house can I afford," a good tool is the 28%/36% rule, which states that you shouldn’t spend more than 28% of your gross monthly income (pre-tax) on home-related costs and 36% as a whole on total debts, including your mortgage, credit cards, and other loans.

For example: If you earn $6,000 a month and have $1000 in existing debt payments, your monthly mortgage payment for your house shouldn’t exceed $1,160. It's important to note that you should still be wise in all of your financial decisions and take your entire financial position into account when considering how much of a home you can afford.

What factors help determine 'how much house can I afford?

Key factors in calculating affordability are 1) your monthly income; 2) cash reserves to cover your down payment and closing costs; 3) your monthly expenses; 4) your credit profile.

  • Income – Money that you receive on a regular basis, such as your salary or income from investments. Your income establishes a baseline for what you can afford to pay every month.

  • Cash reserves – This is the amount of money you have available to make a down payment and cover closing costs. You can use your savings, investments, or other sources.

  • Debt and expenses – Monthly obligations you may have, such as credit cards, car payments, student loans, groceries, utilities, insurance, etc.

  • Credit profile – Your credit score and the amount of debt you owe influence a lender’s view of you as a borrower. Those factors will help determine how much money you can borrow and the mortgage interest rate you’ll earn.

This is not an exhaustive list by any means. Most lenders will also take into consideration your history of paying bills on time, proof of steady income, and maybe even frequent job changes. Take my advice and pay down your debt as much as possible before getting preapproved including any car debt, credit card debt, student loans if any, and even that 96" curved LED 4K Ultra TV that you had to finance.

Real Estate can be challenging, but Trace Realty is here to make sure that your home buying experience is smooth and easy. Our experienced staff members have years of experience in all facets of real estate and we couldn't be more excited to serve you and your family. Call us today for more information about the real estate process and to schedule a showing.

John DeKlerk

Trace Realty


Denise Randall

CrossCountry Mortgage, LLC


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