A financial planner has 2 simple formulas to figure out how much house you can afford

  • A home priced between three and five times your salary is considered affordable.
  • On a $50,000 a year salary, that puts your total price between $150,000 and $250,000. 
  • Try and keep your monthly payment under 30% of your gross monthly income.

If you’re starting to consider buying a home, you’re probably wondering how much home you can afford. 

Luckily, there’s some basic math to help with this— generally, it’s within a range of three to five times your income, financial planner Mark Reyes of Albert tells Insider. 

But, there’s a lot more to consider about how much a home will cost than just simply the price you see listed on a real estate listing app — including how much homes cost in your area, your situation, and your down payment., Here’s are Reyes’ two simple formulas to make sure you can afford the home you want to buy. 

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Multiply your total annual salary by 3 or 5

Reyes says the three to five times your gross salary rule (that’s your before-tax salary) should really be used as a top line, with the number of times your salary depending on your needs. 

The average annual salary in the US is just above $50,000 per year, according to data from the Bureau of Labor Statistics, which Reyes uses as an example. “If you’re making $50,000 a year, you want to aim at $150,000 or lower in the best-case scenario,” he says. “If you need to really stretch it, depending on the cost of living and your budget, you can go up to $250,000.”

There’s no one-size-fits-all answer, but this rule allows adjustments based on your needs. “This will really depend on the cost of living in your specific area, your lifestyle — if you are supporting a family of five versus just a newlywed couple,” he tells Insider.

Overall, he says it’s important to focus more on what you feel you can afford rather than what any lenders or pre-approvals say you can. “When you get pre-approved for a $250,000 mortgage, you probably don’t want to use all of that. You don’t want to hit that maximum,” Reyes says. “They don’t accommodate the cost of living, or if you have a car payment, or other obligations.”

Treating this rule as a ceiling for your home’s price will help you avoid over-spending.

Look for a monthly payment below 30% of your monthly salary

The price you see on Zillow will only be a part of the price you’ll actually pay for a home. Not only are there upfront fees and costs, but there will be expenses along the way, too. 

“A monthly payment under 30% your gross, pre-tax pay will keep homeownership reasonable,” Reyes says. “Anything more, and it tends to become less affordable. You have to think about all those other expenses of owning a house like homeowners insurance, property taxes, maintenance — things that you didn’t really have to worry about when you were renting.”

The more you have saved for a down payment, the less you’ll need to pay monthly. Small down payments can add private mortgage insurance charges, tacking on an additional monthly charge to home purchases with a down payment smaller than 20%. 

The size of your down payment will also determine your monthly payment. The more money you put towards your home up front, the less you’ll pay monthly, Reyes says.

If your potential home payment is looking higher than 30%, saving more and making a larger down payment could help you bring it back down.

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