Is it Time to Buy? See How Much You can Afford in 7 Steps

Buying a home is one of life’s biggest milestones—an exciting journey that naturally comes with questions and emotions, especially when it comes to finances. If you’re wondering whether now is the right time or how much house you can truly afford, you’re not alone. The good news? With a bit of preparation and the right guidance, you can navigate the process with confidence, make informed decisions, and set yourself up for long-term success. Here are some steps to help you assess your readiness and take smart steps toward homeownership.

Step 1: Know Your Budget

Before diving into home listings, it’s essential to understand what you can realistically afford. Start by reviewing your income, debts, and monthly expenses to determine how much room you have for a mortgage payment. A widely recommended guideline is to keep your total housing costs—including mortgage, property taxes, insurance, and any HOA fees—below 28% of your gross monthly income. For instance, if you earn $7,000 a month before taxes, aim to keep your housing expenses at or below $1,960. This helps ensure your home purchase won’t stretch your finances too thin and allows room for other life expenses and savings goals.

Step 2: Check Your Debt-to-Income Ratio (DTI)

Your debt-to-income ratio is a key factor that lenders use to assess your financial health and ability to take on a mortgage. It measures how much of your monthly income goes toward existing debts—like car loans, student loans, credit cards, and other obligations. A lower DTI signals to lenders that you’re managing your finances responsibly, which can make you eligible for better loan terms and lower interest rates. As a general guideline, your total monthly debt payments should stay below 36% of your gross income. For example, if you make $7,000 per month, all your combined debt payments—including your potential mortgage—should ideally not exceed $2,520. Keeping this ratio in check helps you maintain financial flexibility and strengthens your buying position.

Step 3: Plan Your Down Payment

Your down payment plays a big role in shaping your monthly mortgage and overall loan terms. The more you can put down upfront, the less you’ll need to borrow—which can lead to lower monthly payments and may even help you avoid paying private mortgage insurance (PMI). While a 20% down payment is ideal, it’s not required. Many first-time buyers purchase homes with as little as 3–10% down, especially when using FHA loans or other first-time homebuyer programs. Just remember to also budget for closing costs, which typically range from 2–5% of the home’s purchase price and cover things like appraisal fees, title insurance, and legal paperwork.

Step 4: Explore Your Loan Options

Not all mortgages work the same way—and the type you choose can have a big impact on your monthly payment and long-term costs. From traditional 30-year fixed-rate loans to adjustable-rate mortgages (ARMs), each option has its pros and cons depending on your financial goals and how long you plan to stay in the home. Before meeting with a lender, take time to research the basics and come with questions. Ask about eligibility for government-backed programs like FHA, VA, or USDA loans, and be sure to understand how your payments might change over time. It’s also important to know what support is available if you ever face unexpected financial challenges. The more informed you are, the more confident you’ll feel choosing a loan that fits your needs.

Step 5: Think Beyond the Numbers

Just because a lender approves you for a certain amount doesn’t mean you should spend the full amount. It’s important to take a step back and consider how your mortgage payment fits into your overall lifestyle. Do you want to continue traveling, building your savings, or enjoying dinners out and entertainment? Make sure your budget leaves room for the things you value most. Also, keep in mind that moving into a new home often comes with extra expenses—like buying furniture, home décor, or tackling projects such as painting or updating fixtures. These costs can add up quickly, so it’s wise to plan for them ahead of time. Balancing your home purchase with your lifestyle goals will help you feel more comfortable and confident in the long run.

Step 6: Use a Mortgage Calculator

Before you start seriously shopping for a home, I recommend using a mortgage calculator to explore how different factors—like interest rates, home prices, and loan terms—can impact your monthly payment. It’s a simple way to get a clearer picture of what fits comfortably within your budget. You can find a calculator directly on my website, or I’d be happy to connect you with a trusted mortgage professional who can walk you through various scenarios. Taking this step early on can help you make confident, well-informed decisions throughout your home search.

Step 7: Talk to the Pros

You don’t have to navigate the homebuying process alone—that’s what I’m here for. My role is to guide you every step of the way, from narrowing down homes that fit your budget and lifestyle to connecting you with trusted mortgage professionals who can clearly explain your loan options. I also encourage you to reach out to friends or family members who’ve recently purchased a home—they may have helpful insights or tips to share. Surrounding yourself with knowledgeable support makes a big difference and can help you move forward with confidence and peace of mind.

Determining how much home you can afford isn’t just about cold hard numbers. It’s about finding a place where you can live well and sleep easy. With a clear plan, a trusted team and a little prep, you’ll be well on your way to finding a property you love without breaking the bank.

_{Original Article by Carma Stahnke of Blue Matter}