How Much House Can You Really Afford?

Buying a home isn’t just a milestone—it’s often your largest financial commitment. But too many people start the process with the wrong question: “How much house can I get approved for?” instead of “How much house fits comfortably into my long-term plan?”

Just because the bank is willing to lend you a certain amount doesn’t mean that’s what you should spend. When you approach homeownership through the lens of your overall financial plan, it stops being just a transaction—and becomes a foundation for building long-term wealth and flexibility.

Start With the 28/36 Rule

A commonly used guideline is the 28/36 rule:

• No more than 28% of your gross monthly income should go toward housing costs (this includes mortgage, property taxes, insurance, and HOA fees).

• No more than 36% of your gross income should go toward total debt payments, including your mortgage, student loans, car payments, and credit cards.

Example: If you earn $150,000/year (or $12,500/month), this rule would cap:

• Your total housing budget at around $3,500/month

• Your total debt budget at around $4,500/month

But here’s where it gets real: if you live in a high-cost area, are carrying significant student debt, or want to prioritize saving and investing, those guidelines might already be too generous.

Don’t Forget the Hidden Costs of Homeownership

When you rent, your monthly payment is predictable. When you own? Not so much.

Here are the ongoing (and sometimes unpredictable) costs you need to budget for:

• Maintenance & Repairs: Expect to spend 1–3% of your home’s value per year on upkeep. On a $700,000 home, that’s $7,000–$21,000 annually.

• Property Taxes: Varies widely by state and local rates, but easily thousands per year.

• Homeowners Insurance: Often included in your escrow account but still a significant expense.

• HOA Fees: Common in townhomes and condos—can add hundreds (or thousands) per month.

• Utilities & Upgrades: Larger homes mean higher heating, cooling, and water bills. You’ll also face periodic upgrades like replacing a roof, water heater, or appliances.

Bottom line: if you stretch your budget to afford the mortgage itself, you might leave yourself vulnerable to these hidden costs.

The Mortgage Trap: Early Payments Go Toward Interest

Mortgages are front-loaded with interest. That means in the early years of a 30-year loan, most of your payment goes to the bank—not to building equity.

Here’s a visual breakdown of how that plays out over time

In a $600,000 mortgage at 6.5%, for example:

• Your monthly principal and interest payment is ~$3,792

• In Year 1, you’ll pay over $3,200/month in interest

• By Year 5, you’ve paid over $190,000, but only reduced your loan by ~$50,000

This is why early homeownership doesn’t automatically mean wealth-building. Unless home values appreciate significantly or you make extra payments toward principal, your net equity may stay flat for years.

If you're thinking about selling or refinancing in the first 5–7 years, be aware that most of your payments are not helping you build equity.

So, How Much Should You Really Spend?

Lenders base approval on risk tolerance and income—not on your goals, values, or need for flexibility.

Here’s what should go into your thought process:

• Base affordability on your net income, not gross

• Limit housing costs to 25% (or less) of net income—especially if you’re still building an emergency fund, investing aggressively, or want optionality

• Stress test your budget: What happens if you have a gap in income or want to take time off?

• Model the opportunity cost: Could buying too much house delay other goals like investing, starting a business, or early retirement? What's most important to you?

If you’re self-employed or receive equity compensation, housing affordability also has to account for variable income and liquidity constraints—two things traditional mortgage underwriting may not consider adequately.

Final Thoughts: Your House Should Support Your Life—Not Limit It

Buying a home is emotional. It can represent security, success, and even a new chapter in life. But making a smart purchase—one that fits within your financial plan—is what ensures those dreams become sustainable reality.

When you approach homeownership with strategy and margin, you give yourself the flexibility to weather market cycles, unexpected expenses, or life changes. You also give yourself room to keep growing—personally, professionally, and financially.

If you’re unsure how buying fits into your long-term plan—or want a second opinion before making an offer—reach out. Having a coordinated financial team behind you can make all the difference.

If you're reading this and it resonates, let's chat. At WealthBound Advisors, we specialize in optimizing your financial life based on your unique situation.

Disclaimer: This blog is for educational purposes only and does not constitute financial advice. Please consult with your advisor, tax professional, or mortgage lender before making a major purchase decision.