Budgeting for a home: How much can you afford?

Two men moving into their new house together.

A home is almost always one of the biggest purchases you’ll make in your lifetime. That’s why it’s important to do your research before you buy—including making sure you can comfortably afford the monthly payments.

What percent of income should you spend?

Most experts recommend you spend no more than 25–35% of your income on housing. That figure includes not just the mortgage, but also insurance, taxes, and maintenance. (Maintenance alone may cost 1–2% of the appraised value of the home each year.)

Some lenders may encourage you to spend more. But even if you can get approved for a high loan amount, it may not be the best idea. For most people, spending more than 25–35% of their income on housing means there’s not enough money left for other financial goals.

Set aside your savings first.

Before you settle on an amount for your mortgage, be sure you’re factoring in enough retirement savings contributions to maintain the lifestyle you want.

Ensure that you’re contributing up to the maximum amount for any employer-matching contributions to your 401(k) plan, or plan to invest the full allowable amount into a Traditional or Roth IRA each year.

And don’t forget about saving for other financial goals, too. These might include your children’s college educations, paying off credit card debt, building an emergency fund, or even saving for family vacations.

Only when you’ve factored in the savings you need—not just your immediate expenses—will you know how much mortgage you can really afford. And though the price range for your new home may not be as high as you hoped, rest assured that you’re protecting your financial security—and your family’s wellbeing—long into the future.

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