How Much Should You Spend on a House?
Mike Starr
Founder, MortgageWizardTools · M.S. Organizational Management
Lenders tell you the maximum you can borrow. That number is often higher than what you should actually spend. Setting your own budget — based on your life, not just lender formulas — prevents becoming house-poor.
The Lender's Formula vs. Your Reality
Lenders use the 28/36 rule: housing costs up to 28% of gross income, total debts up to 36%. But this uses gross income — not what you actually take home. It also does not account for childcare, groceries, utilities, retirement savings, or emergency funds.
A Better Approach
- •Start with take-home pay — not gross income
- •Subtract fixed expenses — food, transportation, childcare, insurance, debt payments
- •Subtract savings goals — retirement, emergency fund, college
- •What is left is your true housing budget — including PITI, maintenance, and utilities
The 25% Rule
Many financial advisors recommend keeping total housing costs (PITI plus maintenance and utilities) under 25% of your take-home pay. This leaves room for other financial goals and life expenses.
Hidden Costs to Budget For
- •Maintenance — 1% to 2% of home value annually
- •Utilities — often higher than renting
- •HOA fees — if applicable
- •Property tax increases — reassessment after purchase
- •Furnishing and moving — thousands in the first year
Example
| Lender Max | Your Budget | |
|---|---|---|
| Gross Monthly Income | $10,000 | $10,000 |
| Max PITI (28%) | $2,800 | — |
| Take-Home Pay | — | $7,200 |
| After Expenses & Savings | — | $1,800 |
| Affordable PITI | $2,800 | $1,800 |
The lender says you can afford a $2,800 payment. Your real-life budget says $1,800.
Key Takeaways
- •Lender approval is not the same as affordability
- •Base your budget on take-home pay, not gross income
- •Keep total housing costs under 25% of take-home if possible
- •Budget for maintenance, utilities, and furnishing costs
- •Use our Home Affordability Calculator as a starting point, then adjust for your life