How much home can you afford?

[Visual of a handwritten title: “How much home can I afford?”]

How much home can I afford?

[Visual of a drawing of three different-sized homes.]

To avoid a mortgage that weighs you down every month, it’s a good idea to figure out all the expenses you can realistically manage ahead of time.

[Visual of signs in front of each house reading “Under Budget,” “Over Budget,” and “Just Right,” from left to right.]

Creating a budget can help you determine where a mortgage payment will actually fit in to your expenses.

[Visual of a budget list: Utilities, Transportation, Groceries, Saving, Charity.]

Once you’ve got a budget in place, focus less on how much you can borrow and more on how much you want to spend each month. Your monthly payment should fit comfortably within your life and not force you to put any other financial plans or important personal goals on hold.

[Visual of a hand writing “How much is comfortable?” next to man and woman holding a sign that read “Paycheck before taxes.”]

A good rule of thumb is to take whatever you make each month, before taxes, and multiply that by 28%. That’s how much a manageable monthly payment might be. So, for example, if you make $3,500 a month, a realistic payment could be $980 including taxes and insurance. There are a lot of online tools that can make the calculation even easier.

[Visual of a drawing of a backpack labeled “Mortgage payment” with a “Rent” sign already in it, and a woman adding more signs.]

Once you’ve determined exactly what you can afford, a good approach is to actually test out the payment.

That means seeing if you can afford the monthly payments for a place you want. If you’re currently paying $1,000 for rent but a monthly mortgage payment—including property taxes, homeowners insurance, plus any additional costs like utilities, upkeep of the property, and, if necessary, homeowners association fees—would cost $1,500 bucks, take the additional $500 and put it into savings.

[Visual of the woman happily wearing the backpack with a speech bubble, “Hey, this isn’t too bad!”.]

If it’s not a stretch, then maybe you’re ready to buy, and that money you save every month can give you a jump start on saving for your down payment later on.

[Visual of a partly constructed home.]

It’s also important to take some time to add up what you’ll want for a down payment.

[Visual of 20% being written on one of the exterior walls.]

Putting down at least 20% of your home’s purchase price is generally recommended, as it can get you a better interest rate and spare you from additional costs like private mortgage insurance—an added expense lenders typically require, to protect them in case you default.

[Visual of one of the house walls being erased, and 20% being replaced by 10%.]

But if saving 20% for a down payment seems daunting, you may have other options, such as government-sponsored loans that you might qualify for, or mortgages with down payments as low as 3%.

A lower down payment may be enticing and bring you closer to your dream of owning a home, but you’ll also have less equity and your monthly payment will be higher. So, it’s best to do research and compare your options before making any decisions.

[Visual of a man and woman walking up to their new home.]

Buying—and, particularly, owning—a home can come with some challenges. But with the right know-how, some patience and a little hard work, you'll soon be on your way to unlocking the front door to that new house you’ve always wanted. Especially since you’ll have a mortgage that’s manageable for you.

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