"How much house can I afford?" is the most common topic on real estate subreddits here, so I thought I'd give a few thoughts on the topic, and try to simplify the approach.

Common answers

The most common answers are percentages. Either a percentage of the gross income, or a percentage of the net (take home) income.

A lender will tell you the max you're approved for.

An approval does NOT mean you can afford it.

Dave Ramsey will tell you 25% of your net income preferably on a 15 year term. Which sounds great in practice, but then when you look at what the payment will be and what purchase prices are today, you'll see that it's very difficult to pull off.

Others will aim for a 30% gross income rule, which sounds like a good middle ground between the lender, and Dave Ramsey.

But here's where I have a problem with these answers

Residual income/lifestyle

What lenders get wrong is 49.99% of gross monthly income is not affordable.

Gross is BEFORE taxes get taken out.

What lenders also get wrong is they won't account for all of your income, example: bonuses need a 2 year history, and if the bonuses are declining, underwriting may not consider the bonus income in their calculation at all.

What net percentage rules get wrong is lifestyle and residual income considerations.

If you are making $20k net per month, and are limited to 25% of the net, depending on lifestyle, you'll likely have a lot of residual income (remaining amount after expenses are paid)

Comparing $20k income to a $5k income and making them play by the same percentages doesn't shape out as well.

25% net of $5k net is $1,250 with $3,750 left over

Where 25% net of $20,000 is $5,000 with $15,000 left over

(I also realize $20k net is way above the median, I'm almost done making this point)

People will argue that the $20k net person will boost her expenses, make a lavish lifestyle and live by the same percentages as the rest of us.

And here's my point

We all have different lifestyles.

I'm reserved, a home body, and rarely go out to eat. But I'm also married with 4 kids, and I think going out to eat isn't worth the bill. A tightwad with a bunch of kids.

I may spend more on my kids in groceries than a single person would spend going out to eat.

When I was young and married to my ex-wife, we lived in a basement apartment, paying $600 per month in rent, we both worked, and still couldn't save money.

Everyone's financial discipline is different too.

My formula

The formula will sound simple, but it will take work on your end to figure it out.

Net income - savings/lifestyle & survival costs = affordable housing payment

Net income

This is what comes to you after you've been taxed, not before. You may also have a 401k contribution applied.

This is what is landing in your bank account.

Savings

Are you saving for retirement?

Do you have an emergency savings account?

Do you have _ # of months saved up for job loss?

Something else to keep in mind is the repairs for your home.

Set up a home repair savings account.

If you don't know what to save, I'm going to be hypocritical and lazy and say you should aim for 1% of the home's purchase price, per year.

Figuring out your savings goals is a crucial step that you should take before buying a home.

lifestyle

Let's take a look at all of those subscriptions you have...

and these receipts to... pickleball USA?

If you want to keep your current lifestyle and buy a house, you must include all of these subscriptions.

And don't lie to yourself. You know you won't stop pickleballing.

Survival costs

These are costs that aren't wants. They're needs. Like water, heating, cooling, garbage, gas for cars, medical expenses, insurance, groceries, etc. (the list is long here)

Throw in any loan payments you have in here too. If you want your credit to survive, you have to be making these payments on time.

Housing costs

Now that you have your savings, necessities and lifestyle expenses out of the way, see what's left over.

That's what you can spend on a housing payment.

Your housing payment is your mortgage payment + HOA

If you didn't add a home repair fund, then do that here too.

If you didn't add utilities, then add that here too too. :)

Here's what goes into your mortgage payment:

Principal and interest (this is your loan)

Homeowners insurance (your lender will include this in your 'escrow payment'... this covers hazard insurance, like wind, fire, earthquake)

Property taxes (your lender will include this in your 'escrow payment'... this pays for local programs, like schools, library, fire department)

Mortgage insurance (this is a monthly charge if your down payment is less than 20%)

an example

Here's an example using the median and averages on everything.

Median income: $83,700 gross which can equal to about $5,500 net per month depending on the varying state income tax.

Average groceries: $520/month - This isn't my budget, I spend about $1,000 here, I'm getting this from the BLS

Average restaurant spending: $310/month

Transportation: $1,100 per month (car payments, gas, insurance, maintenance)

Healthcare: $500/month (premiums, prescriptions, medical services)

Utilities and communication: $430/month (internet, gas, water, trash, electricity, internet and phone)

Insurance: $170/mth (life, disability, umbrella)

Monthly debts: $250/mth (not auto loans, but student loans, personal loans, credit cards, buy now pay later setups)

Lifestyle: $400/month (hobbies, personal care, entertainment)

Savings: $500 (emergency, buffer, home repairs)

Total remaining: $1,320

Reverse search

Now take that remaining amount ($1,320) and see what kind of home that can get for you.

Use a reverse payment calculator, or an affordability calculator.

In this example it's going to be sad, but I'll see it to the end.

Here's a calculator that attempts to do this for you. I made it, and it could use refining, and I still need to add FHA as a mortgage option, but it gives you a general idea for conventional mortgages.

This provides the mortgage payment, not HOA, nor utilities or savings accounts, just the mortgage.

Plug in your state, your budgeted payment, your down payment, and the interest rate (average rates are posted below the calculator) and you'll see what kind of purchase price that'll get you.

I did Utah, with a $30k down payment and 6.36% interest rate (average on mortgage news daily's website today -scheduled from 12/8/2025-)

and here's the purchase price I got:

$195,177

If I go to Zillow, I won't find anything in Utah for that. The median purchase price is around $550k

This isn't a post to lament the unaffordability we're stuck in.

It's meant to show you the steps you need to go through before buying a home.

Mortgage delinquencies are rising and more so with FHA loans.

I hope we can avoid the house-poor trap, even if that means postponing homeownership to get either get the budget under control, or see what would need to be sacrificed to afford homeownership.