Step 8 of 48 Phase 2: Assess Your Buying Power
2.1 What You Can Afford
Calculate your home buying budget to understand what you can realistically afford.
What This Step Covers
- Income Analysis
- Debt-to-Income Ratio
- Down Payment Options
- Monthly Payment Estimates
Pro Tips
- Use the 28/36 rule as a guideline
- Factor in all homeownership costs
- Consider your lifestyle and other financial goals
- Get pre-approved to confirm your budget
Common Mistakes to Avoid
- Stretching your budget to the absolute maximum the lender approves - leave room for life
- Forgetting ongoing costs like maintenance (budget 1-2% of home value per year), HOA fees, and higher utilities
- Not accounting for property tax increases over time
- Using your entire savings for the down payment and leaving no emergency fund
Real-World Example
Sarah's Story: Sarah is a first-time buyer earning $75,000 per year. She wants to know how much house she can afford using the 28/36 rule.
- Gross monthly income: $6,250
- Monthly debts: $400 (student loans) + $300 (car payment) = $700
- 28% rule (housing): $6,250 x 0.28 = $1,750 max housing payment
- 36% rule (total debt): $6,250 x 0.36 = $2,250 max total debt
- Max housing after existing debt: $2,250 - $700 = $1,550
- Using the lower number ($1,550), she can afford roughly a $280,000 home with 5% down
Outcome: By using the 28/36 rule, Sarah found a comfortable budget that leaves room for savings, entertainment, and unexpected expenses - rather than being house poor at the maximum $1,750.