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If you’re thinking about buying a home, one of the most important questions to ask is: “How much house can I afford?” Whether you’re a first-time homebuyer or looking to move up, understanding your homebuying budget is the first step to a smart and successful real estate purchase. Follow these 7 steps to calculate how much home you can afford—so you can shop with confidence and avoid surprises.
1. Determine Your Monthly Income
Start with your gross monthly income, before taxes and deductions. Mortgage lenders use this number to calculate how much home loan you qualify for. If you want to stay conservative, base your numbers on your net income (take-home pay).
2. Review Your Monthly Expenses
List all of your regular bills: rent, car payments, credit cards, utilities, groceries, subscriptions, and other debts. Knowing your monthly expenses helps determine how much you can comfortably spend on a mortgage without stretching your budget.
3. Check Your Credit Score
Your credit score directly affects your mortgage interest rate, which impacts your monthly payment and loan approval. Higher credit scores typically lead to better loan terms and lower monthly costs. Be sure to review your credit report and correct any errors.
4. Understand Your Debt-to-Income Ratio (DTI)
Lenders use your debt-to-income ratio to assess risk. Ideally, your total monthly debts—including your future mortgage—should be no more than 43% of your gross monthly income. A lower DTI means you’re more likely to qualify for a home loan with better terms.
5. Plan Your Down Payment
The amount you can put down affects your loan amount and monthly mortgage payment. While 20% is traditional, many first-time homebuyer programs allow for as little as 3% down. There are also options for down payment assistance, so explore what’s available in your area.
6. Use a Home Affordability Calculator
Plug your numbers into a home affordability calculator. Include estimated property taxes, homeowners’ insurance, PMI, and HOA fees if applicable. This gives you a realistic idea of your monthly payment and ideal price range.
7. Get Pre-Approved by a Mortgage Lender
A mortgage pre-approval is the most accurate way to know how much house you can afford. It also shows sellers you’re a serious buyer. A local real estate expert (like me!) can connect you with trusted lenders and guide you through the process from start to finish.
Final Thoughts: Know Your Budget Before You Buy
Buying a home is exciting, but being financially prepared is key. These 7 steps will help you figure out how much house you can afford, avoid surprises, and make informed decisions. If you’re planning to buy in the DFW area this year, I’d love to help you navigate the process.
Let’s talk about your homeownership goals—reach out anytime!
