How Much House Can I Really Afford?


When you start looking up how much house you can afford, you might be surprised by the high number you come up with.  Sure, you might be able to afford to make the mortgage payment, but you probably won’t have enough money left over to pay your bills.  Forget about groceries.  It’s much better to approach this information and these calculators with skepticism, and keep your current monthly budget in mind.

Just because you can get approved for a certain amount, does not mean you should take on that large of a mortgage.

Traditional Advice

You have heard it, time and time again.  You can afford a house that costs between 2 and 3 times your annual salary.  Or, your mortgage should only account for 28% of your monthly budget.  Or, how about, housing costs should not exceed 35% of your monthly budget.

There are a number of calculators that you can play with.  Nerd Wallet has a Home Affordability Calculator and a Mortgage Calculator.  Zillow also has an Affordability Calculator and a Mortgage Calculator that you can plug your numbers into.

The problem with traditional advice, and many of the online calculators, is that they do not take into account your monthly budget and other savings goals.  Just because you have a low debt-to-income ratio, and a sizable down payment, does not mean you should be looking at houses in the upper range of what these calculations or calculators tell you you can afford.  A better way to approach home affordability calculations is to start with your budget, and adjust the numbers in the calculators to fit what you would be comfortable paying each month for a mortgage payment.

Financing the Farmhouse

When I try to calculate how much house we can afford, I come up with wildly different numbers.  $350,000? $540,000?!!!  These numbers seem totally ridiculous.  I know that we can’t afford a house that costs half a million dollars, but I could see where people get into trouble taking on more mortgage than they can afford because they followed traditional advice.  Looking at what we are spending each month on rent ($950) plus what we are saving for a down payment ($1,300), it looks like we could take on a $2,250 mortgage payment without changing our lifestyle at all.

But wait, I didn’t take into account how our monthly bills/utilities will change when we become homeowners.  In addition to rent, here are our monthly housing expenses :

  • Renter’s Insurance – $11
  • Electric (heat included) – $130
  • Internet/Basic TV – $70
  • Netflix – $10
  • Xbox Live – $11

Total: $232

These are estimates for what we will be paying for monthly housing bills once we become homeowners:

  • Homeowner’s Insurance – $100
  • Electric – $100
  • Propane – $150
  • Internet/Basic TV – $70
  • Netflix – $10
  • Xbox Live – $11
  • Garbage – $25

Total: $466

I estimate that our monthly bills will increase $234 dollars when we become homeowners.  This could be even higher if we have to pay for snow removal (not sure what we’re doing for that yet).  With all this taken into account, I think that we could afford a $2,000 mortgage payment.  According to Zillow, this means that with $50,000 down, we could afford a $265,000 house in our area.

Other Calculations

I may have over-estimated the taxes we will have to pay ($9,000), because of the fact that we do not know what our house will be assessed at yet.  Our house will be about 1,600 square feet, so if you estimate $150 per square foot to build, plus another $30,000 for a garage, our project is looking like it will cost $270,000.  I would be thrilled if we could stay that close to what I am estimating we can actually afford, but building projects have a tendency to keep creeping up in price.

Stay tuned to find out what our general contractor comes back with for actual numbers, and to follow our progress as we build.

How did you calculate how much house you can afford?

Illusion of Scarcity Worksheet (PDF)

Screen_shot_2017-05-29_at_12.58.38_pm

Download this free worksheet and start paying yourself first.


  • Budget for financial obligations and recurring expenses
  • Prioritize your financial goals
  • Make all your transfers on payday
Powered by ConvertKit
More from Mrs. Farmhouse Finance

Harness the Power of the Third Paycheck

If you get paid biweekly, you know the thrill of receiving a...
Read More

Leave a Reply

Your email address will not be published. Required fields are marked *