How Much House Can I Afford?

You may qualify for a home that costs way more money than you will actually feel comfortable paying. And that can be an exciting feeling when you first see the approved dollar amount on your approval letter, especially if it means opening up neighborhoods or homes you’ve been looking at and thought were maybe out of reach.

Before you start shopping in that price range, we definitely need to talk about how the payment is going to affect the way you and your family live. Buying a home is a big decision, and I want you to feel good about it since you’ll be making that payment every month. Really finding the right home should start with deciding on the payment amount range that’s going to work for you and that you’re going to feel comfortable living with every single month.

I’m Jeff Moran (NMLS #483943), a mortgage broker with C2 Financial Corporation in Bluffton, South Carolina. I’ve been helping clients with their mortgage loans since 1996, and today I’m licensed in fifteen states. A client asks me, “What do I qualify for?” and I review their income, debts, credit, and available funds to answer that. We need to understand the whole picture and each client’s unique scenario. Figuring out what price range they should be looking at also means being clear on the monthly payment amount they’re comfortable with, how much they want to put down, and how much they want to keep in the bank.

Those are things we should figure out together upfront, even if you qualify for more. You still want to be able to travel, save, enjoy the things you like to do, and have money available when something unexpected comes up. A home you love should fit into that life without leaving you house poor and wondering how white bread and butter became the dinner plan.

Once we understand what payment amount feels comfortable, we can compare loan options with that in mind, and you’ll know what price range to really look at. You’ll know what you qualify for, what making this purchase would take out of your savings accounts, and what the payment would look like, so you can decide how much you actually want to pay for a home.

The monthly payment you’d feel comfortable with

I like to start by asking what you’re paying now and how that payment feels. That gives us a real starting point to work from.

Maybe you have room to pay more and would be more than fine and ready to do it for the right place. Or maybe you feel you’re comfortable with the amount you’re paying now and want to stay closer to it. Your income might be changing or might have recently changed, and you need to see a few examples before you know what really makes sense.

Let’s talk more and work through all of this together. And for sure, take into account the things you spend money on each month that don’t necessarily show up on a loan application or on your credit report. Childcare, food for your growing boys, a blueberry or strawberry fund (who knew organic food was going to be so expensive, lol), vacations for memories, retirement savings (which should not be neglected ever), putting money into your business: all of this affects how a payment feels once you’re paying it.

You don’t have to give me an exact payment right away. A range is good, and we can compare mortgage and monthly payment options so you can see what each one would cost you every month. It’s the right way to begin, and it puts you in direct control of your finances. You pick the payment that feels good, and we work backward together to determine the price range it supports.

If you’d like to look at some examples first, you can explore your options here.

Your income is headed up

Your income is headed up, and that belongs in this conversation. I talk about it with clients often, especially the ones still building their careers. The payment that feels comfortable today may look a little different once you consider where your income is going over the next few years.

Sometimes it can make sense to stretch the payment a bit, as long as there’s a real reason to expect your income to grow. A client might tell me, “I’m due for a raise next year,” or “I’m moving into a position that pays more.” Those are things worth talking through together, including how certain the increase is and when you expect it to happen.

We still want the payment to fit comfortably with what you make today, with enough money available if that increase takes longer than expected. But if your income is headed up and you can understand why it’s a path in front of you, let’s talk about it. I want to make sure we both understand how it figures into what we’re trying to help you with, which is a payment you’ll feel good about every month.

How do we figure out what you qualify for?

To review your financing, we’ll look at your income, monthly debts, credit, and the money you have available for the purchase. We’ll also look at the requirements of the loan programs that might work for you.

One part of that is your debt-to-income ratio, which compares your qualifying monthly income with your monthly debt payments, the proposed housing payment included, along with car payments, credit card minimums, and student loans.

The income used to qualify is generally before taxes and payroll deductions, so it’s bigger than what reaches your bank account. We keep that in mind when we’re talking about your budget.

The lender’s calculation also won’t include every expense you have. Two clients could have similar incomes and debt payments and qualify for similar loan amounts, while having completely different ideas about what they’re comfortable paying.

If you’re self-employed, earn commissions, receive bonuses, or have income from several sources, we’ll want to review how that income can be documented and used. That’s something I’d rather understand early so we’re working with a realistic price range from the beginning.

Here’s more on how debt-to-income ratios work.

The real monthly cost of the home, taxes and insurance included

I want you to understand what’s included in any payment I show you, and what you may need to pay separately. We’ll account for the principal and interest on the loan, property taxes, homeowners insurance, mortgage insurance if it’s required, and any HOA or condo association dues. Flood insurance should also be included if it’s required or coverage you decide to carry.

Some of those are collected with your mortgage payment and some are paid separately, but every one of them comes out of your pocket, so we look at all of them when we’re deciding what fits your budget.

This is also why two homes at the same price can cost different amounts each month. One might have higher property taxes, another might have significant association dues, and the insurance costs could be different too.

As you find homes you’re interested in, we can update the payment using the details of each property. If you’re buying near the coast, I’d get insurance quotes early so we have a better idea of what to expect. We’ll also want to look at how the property taxes would apply to your purchase and intended use, since what the current owner pays may not be what you’ll pay.

This guide explains how escrow accounts handle taxes and insurance.

Your down payment versus your savings account

I want us to look at those two questions together because the down payment affects both your loan and the money you’ll have available afterward.

Putting more down may lower your payment or change your mortgage insurance costs. You may also have plans for that money, like renovations, moving expenses, or simply keeping a cushion in the bank.

We can compare a few down payment amounts and see what actually changes. If putting more down saves you a certain amount each month, you should be able to see how much that is and decide whether it’s worth taking that extra money out of your savings.

We’ll also include closing costs, prepaid expenses, and any required escrow deposits when we estimate what you’ll need for the purchase. That way, you can see the total amount of money you’d pay at closing and what you’d have left once everything is paid.

It’s always important to make sure you understand, take a closer look at, and review and discuss all of your closing costs with your loan officer.

Your rate option, and what it costs you upfront

Your interest rate affects the payment, but we should also look at what that rate costs you upfront.

Depending on the options available for your loan, you may be able to pay more at closing for a lower rate or take a higher rate with a lender credit toward your closing costs.

I want you to see those choices side by side, with the payment and costs laid out. We’ll work out how long the monthly savings take to cover the upfront cost, then compare that with how long you expect to keep the loan and whether you’d rather use that money elsewhere.

Here’s more on what affects your mortgage rate.

Qualifying for more than you want to pay

That’s useful to know, and it gives you some flexibility while you’re looking. We can still keep your search focused on the payment you’ve decided feels comfortable.

For example, let’s say you could qualify for a $4,200 monthly housing payment, but you’d rather stay around $3,600. That’s a difference of $600 a month, or $7,200 over a year.

You might want that money available for vacations, savings, repairs, or other expenses. You might also find a home that makes you comfortable paying more because the location, space, or features are worth it to you.

We can revisit the payment and the money up front as you look. I want you to understand what the higher payment would change and have time to think about it before you commit. You’re making a decision about how you want to live as much as you’re making a decision about a home.

These payments are just examples, and this is not a loan quote.

Turning the payment you want into a price range

Once we know the payment you’re comfortable with and how much money you want to put down, we can work backward to a purchase price using estimated loan terms, taxes, insurance, and any other property expenses.

We’ll review your qualifications through the pre-approval process, so you have a clearer understanding of both what you qualify for and what you want to pay.

As you find homes, we can work out what each one would cost for the ones you’re seriously considering. You’ll be able to compare the payments and the money you’d need to bring to closing. If you find a home that’s in a higher price range than what you’re looking at, or if the property taxes or the monthly association costs are not what you were expecting or what you had first been looking at or considering, then we can talk through it and make sure that you understand all your options before you make an offer.

You can start exploring your options here. If you’d rather talk through your situation with me, I’m happy to help you figure out a range you feel good about.

Common questions

How much house can I afford on my salary?

Your income helps us figure out what you qualify for, along with your debts, credit, available funds, and loan options. To decide what you want to pay, we should also look at the payment you’re comfortable with and how it fits the rest of your life.

Do I need to know my budget before talking with you?

No. You can come in with a payment or price in mind, or we can figure out a range together. A few payment examples, with the money you’d need upfront for each, usually settle what feels comfortable.

Should I use the full amount I qualify for?

Only if the payment and the money you’d have to part ways with feel right to you, after you’ve weighed your other expenses, savings plans, and the money you want to keep available.

Does pre-approval tell me what my payment will be?

It gives you an estimate. As you find specific homes, we update it with the purchase price, loan terms, property taxes, insurance, and any applicable dues.

How much money will I need beyond the down payment?

We’ll estimate closing costs, prepaid expenses, and any required escrow deposits. You should also think about moving costs, anything you want to do to the home, and how much you’d like to keep in the bank afterward.

Could a different loan program give me a better payment?

Yes, it can. The programs available to you carry different rates, mortgage insurance costs, and down payment requirements. We compare them at the same purchase price so you can see how the payment and the money you’d pay at closing change.

Estimates and educational information are not a loan approval or commitment to lend.