You might be asking yourself. how much house can I afford? And to tell you the truth, that’s the right approach when wanting to buy a property.
Before reading on, if you’d like to watch my YouTube video about this click right here.
Too often people jump into real estate really fast and end up becoming what is commonly know in the personal finance world as “house poor”. Which is just a not-so-fun way to say that someone has way too high of a monthly payment based on their income to be able to hit other financial goals.
That last part is the big takeaway, hit other financial goals.
You hear it all the time that a home is the biggest financial decision you’ll probably make. While that may be true for most, a lot of people tend to forget that they will have other financial goals they will want/need to achieve.
That brings us to the big question in today’s article. How much house can I afford?
Of course, there isn’t a one size fits all for the answer, but fear not because there is a good rule of thumb you can go by.
The big rule of thumb is having a house payment (that includes taxes, insurance, and HOA) at around 25%-30% of your income. The range is there because of the “no size fits all” thing we just talked about.
Now you might be asking some questions in your head. Why that range? How can I figure this percentage out? and “Why is Denis the coolest?”
Okay, that last one maybe not so much, but I can help with the first two.
Why 25%-30%? This is because you don’t want to be house poor like we talked about. Anything more than 30% of your income is going to make it difficult to save, invest and plan for other financial goals. Keep in mind too that there are other expenses associated with the home that are in the monthly budget. Such as utilities, maintenance, repairs, etc.
So how do you figure out that percentage? Simple. You take what your monthly payment is estimated to be and divide that by your monthly income and you get your percentage.
If you want an easy clean spreadsheet that has all the math set up you can purchase the one I made click this link here.
This spreadsheet allows you to plug in the basic information you have and it will do all the calculations for you. If you’re looking for a new house, this is a great tool to give you an idea of how much house you can afford.
You can watch my YouTube video as well to see how to use the spreadsheet. Just click right here to take you to YouTube!
Best of luck on your journey to getting a house you can afford!
Your friendly neighborhood personal finance guy, Denis