# How Much House You Can Afford?

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As you know one of our financial goals is to build our house down payment fund. We would like to get a mortgage and have a small house or town house just outside the city.

I was reading a Scrooge Strategy tip on calculating on your savings plan. We’ve been setting aside some money, but we didn’t have an end goal. I wanted to get an idea of the size of the down payment we should be saving for.

I decided to check around the web and see what the personal finance calculator gave as ballpark figures. I got conflicting opinions on how much house we can afford. I thought it was interesting  to share with you how different the numbers can be if you only rely on web financial calculators.

### How We Ran the House Down Payment Numbers on the Web

We used the median American income of \$50,233.00 for this post’s numbers to give you an idea of what we found. We used a down payment of  \$10,000. The mortgage rate was based on an approximate FICO score of 750 and Bankrate’s estimate of our locality’s rate of 5.1% for a 30 year mortgage.

For property tax and home insurance, we used the national average of \$3,500 and \$481.

### What the Financial Calculators Told Us on How Much House We Could Afford

Bankrate’s Calculator had us enter a lot of information regarding gross monthly income and new house information such as insurance and real estate tax.

It also asked about our current debt payments, of which we have a student loan payment of \$189/month. It gave us a home price limit of \$191,639.27 and a monthly mortgage of \$986.21.

CNN Money’s calculator asked about gross annual income, down payment, insurance, property tax, and monthly debts. The results were given from a conservative amount of \$164,775.52 to an aggressive amount of \$203,324.97.

The total monthly payments (mortgages, taxes, and insurance) would be \$1,172.10 to \$1,381.41.

Quicken’s Loans Calculator did it a bit different from the others. It asked us which state we were looking in (North Carolina)and  how much we wanted the mortgage payments to be.

I entered our current rent (\$724) and it told us we could afford a mortgage of \$88,983 to \$93,028 , depending on the size of our down payment (estimated from \$8,090 to \$12,134).

There’s a big difference between the numbers.

### Figuring Out a House Down Payment Goal For Ourselves

After comparing what was up on the web calculators, it looks like what we think we’d want for a mortgage is considered conservative. Our goal is to keep our housing costs (mortgage, taxes, and insurance) no higher than 25% of our monthly income.

That would mean our mortgage would be around 2.5x our annual income. Looking at that number, we’re setting a goal of 10% down (more would be better).

How did you plan your house down payment?

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### 11 Responses to How Much House You Can Afford?

1. These calculators can certainly be helpful. But the real math starts with the budgeting process. At least, it should start there. We usually coach buyers to set a budget first, long before they start talking to lenders, house hunting, or using mortgage calculators. A lot of people don’t realize you can get approved for a loan that’s too big for you.

Thanks for sharing your experiences with this process. I’m sure a lot of folks will find it helpful. Take care. ~Brandon

2. We put 10% down on our house. I’d rather we have put 20% and avoided PMI (about \$720/year, but tax deductible), but the perfect house came on the market at the perfect price, so we went ahead with it.

• Good for you! Having 10% down is a great accomplishment. Having a bigger down payment can significantly lower your mortgage.

3. Young Old Guy says:

There’s no real answer here. There are only guidelines. In my experience, no one’s life is “one size fits all.”

First thing, get rid of your debts. All of them. School loans might be the only exception.

After 3-6 months of real living expenses are in the bank, I think it’s OK to save for the down payment. The 20% down payment is generally the next step. At that point, if you’re comfortable with your income for the next 15-30 years (depending on your loan), then I’d recommend buying a place.

I bought two duplexes and a primary residence this way. Many people can buy in times of economic excess, but they can’t keep it in times of economic decline. Make sure you can afford what you buy. Also, don’t forget to total up all the interest over the 15 or 30 year loan. You might be surprised how much you’re really paying.

4. One of the things to consider when purchasing (which as a new homeowner you may not be expecting) is paying property taxes and homeowner’s insurance. Depending on where you live and what you buy, property taxes will add a few hundred bucks a month to your payments.

Of course, that doesn’t even include all the unexpected expenses — like the pool of water we found under the carpet in my office the day we moved in!

5. Julie says:

I always heard that the general rule was 2-4x your personal income. My husband and I bought a house less than 2x our income with more than 20% down (We were looking at higher ranges but didn’t find anything we liked until we started looking at a wider range of prices and found what we needed).

Keep in mind that you can always go LESS than 2.5x your income!

• Thank Julie for sharing your thoughts.Going less is an option rarely mentioned.

6. partgypsy says:

You have to remember those housing calculators assume you have no other savings goals/commitments including for retirement, college education, saving for the next car, emergency fund, ANYTHING. The best way to figure out how much you can afford is to track your after tax budget. Once you account for any other savings commitments, see what’s left over in your budget. Add that amount to whatever you are paying currently for rent. That’s the amount you can afford for housing (mortgage +insurance+property tax).
When I ran the calculators there was a big disconnect. In our situation the calculators were saying that we could afford 1300-1700 a month housing payment, when I know we can only afford something around 1000 a month.

7. Miss Tish says:

When my husband and I relocated a year ago and began our house search we went to the bank that we’ve always banked with. We were told we qualified for \$409,000?!?! We have excellent credit and make an OK living but we were really shocked!!!! But having done this before we knew better than to max out this amount. We laughed and left and ended up choosing a house for \$235,000.

And you know what – it’s wonderful! Do I look at those \$400K houses with a little envy? Sometimes…. But then I think about how we have the ability to save and tithe! I don’t need to keep up with the Joneses – they aren’t paying for my retirement!! 🙂

My suggestion is take whatever the max is and subtract 20% (or more if you can). Having a little breathing room is soooooo worth it! Just my two cents! 🙂

8. Hopefully people can do better and follow the 30/30/3 rule we talk about. 30% cash to be able to do at least a 20% DP, 30% max of your gross income, and a house that costs no more than 3X your annual gross salary.