Here’s How We Calculated the Costs

There's some math coming up. However, bear with me. All you have to do to understand how we arrived at your mortgage figure is follow these three basic measures.

1. Calculate 25% of your monthly take-home pay.

If you're having a mortgage, never buy a home with a monthly payment that's more than a fourth of your take-home pay—you'll be house poor otherwise!

The 25 percent cap applies to principal, interest, property taxes, homeowner's insurance, and private mortgage insurance if your down payment is less than 20%. (PMI). Also, if your new home is part of a HOA, don't forget to factor in HOA fees while planning your budget.

To be specific, take-home pay is the money that goes into your bank account after taxes and other deductions have been deducted from your gross income. If you're married, you'll want to factor in your spouse's net monthly income as well.

Let's say your gross take-home income is $6,600 a month. To get your full monthly house payment, simply multiply the number by 25%. If you earn $6,600 a month, your average mortgage payment should not exceed $1,650.

3. Take into account the risks of homeownership

Significant home losses can be covered by your emergency fund, but some homeownership costs must be factored into your monthly budget, such as:

Utilities are a type of service. Depending on the home, things like electricity, gas, water, internet, and trash collection can cost more or less. However, if you're used to spending $100–250 a month on utilities as an apartment renter, you'll likely need to increase that budget to closer to $500 per month as a homeowner.

Repairs and maintenance. In a typical year, most people complete approximately seven home improvement tasks for a total cost of $1,500. Projects may involve items like maintaining the yard or HVAC system, fixing a leaky roof or broken driveway, or resolving a mold issue, depending on the age of the house.

Improvements and additions If you want to save for a few big home improvements, you'll need to make space in your monthly budget for them as well. The cost of only a minor kitchen remodel is nearly $20,000.

2. The mortgage calculator is to experiment with various home prices while staying within your budget.

Then, using a mortgage calculator, experiment with various house prices and down payments before you find a monthly payment that is within 25% of your take-home pay.

Let's put this to the test with a $1,650 maximum monthly house payment as an example. If you use the mortgage calculator and enter a 30-year fixed-rate mortgage with a 4% interest rate, a 1.14 percent property tax rate, and a $1,200 annual homeowner's insurance policy, you'll get the following home prices:

$185,000 home with a 10% down payment ($18,500)
$225,000 home with a 20% down payment ($45,000)
$253,000 home with a 30% down payment ($75,900)
$287,000 home with a 40% down payment ($114,800)

Keep in mind that these are just projections. Try different combinations with our calculator to find the best mortgage number, interest rate, and down payment for your budget.

You'll feel more confident about saving for the right down payment and buying a home you enjoy once you've determined how much house you can afford.