How Much House Can I Afford? A Beginner's Guide to Budgeting for a Home

Introduction

Dreaming of homeownership? Before you start touring homes, it’s important to know what price range is realistic for your budget. Overstretching financially is one of the most common mistakes first-time buyers make. This guide will help you calculate how much house you can afford—based on your income, debt, savings, and long-term financial goals.

Step 1: Understand Your Debt-to-Income (DTI) Ratio

Lenders use your DTI ratio to assess how much of your monthly income goes toward paying debts.

Formula: Monthly debt payments ÷ Gross monthly income = DTI

Ideal DTI for mortgage approval: Under 36%
Maximum mortgage payment: Usually capped around 28% of your gross monthly income

Step 2: Estimate Your Down Payment

The more you put down, the less you’ll borrow—and the more favorable your loan terms may be.

Conventional loans: Typically require 5%–20%
FHA loans: Minimum of 3.5%
VA and USDA loans: May offer 0% down

Tip: Aim for 20% down if you want to avoid private mortgage insurance (PMI).

Step 3: Factor in Monthly Homeownership Costs

It’s not just about the mortgage! You’ll also need to budget for:

Property taxes (especially high in some states, including Texas)
Homeowners insurance
HOA fees (if applicable)
Maintenance & repairs
Utilities

🎯 Rule of thumb: Total housing expenses should stay under 30% of your monthly income.

Step 4: Use the 28/36 Rule

This industry standard helps you set financial boundaries.

28%: Max % of income toward housing (mortgage + taxes + insurance)
36%: Max % of income toward all debt (credit cards, car loans, student loans + housing)

Example: If you earn $6,000/month gross → 28% = $1,680/month toward total housing costs

Step 5: Use a Home Affordability Calculator

Online tools can give you a quick estimate based on your income, location, loan type, and interest rate. Look for calculators that account for:

Loan term (15 vs. 30 years)
Local property taxes
Insurance and HOA fees

Texas-Specific Considerations

While this guide applies nationally, Texas buyers should remember:

Higher-than-average property taxes can increase your monthly payments
No state income tax helps offset some costs
Some counties offer homestead exemptions to reduce property tax bills

Final Thoughts

Knowing how much house you can afford isn’t just about qualifying for a loan—it’s about protecting your financial future. Use this guide to create a realistic home budget that gives you peace of mind, not just a place to live.