Owning a home is the American Dream. And there are many benefits to owning a home! If you plan on buying a house, you undoubtably wonder how much money you’ll need to make your dreams come true.

The truth is there isn’t a standard number indicating how much you should spend on a home. It just really comes down to what you can afford. Of course, there are a lot of factors that can affect how much house you can realistically afford. Things like your income, savings, the local cost of living and bills will all be factored into how much a mortgage lender will lend you.

Here are some tips on how to figure out how much should you spend on a house:

Your Debt Will Guide You

The majority of people have debt when they apply for a mortgage. Looking at your entire debt picture will help you determine how much you’re able to afford in a house.

To determine your budget, you can use the guideline that you can afford something five times your household income, minus the amount you pay annually towards debt. Remember that your mortgage payment will include insurance and taxes. Your monthly mortgage payment should ideally be less than 30% of pre-tax income, and all of your monthly debt payments total should ideally be less than 40% of pretax income.

Estimate the Down Payment

How much you can afford is based on what you can realistically pay for housing each month and how much cash you can put down. Although a 20% down payment is ideal, many first-time buyers put between 5% and 10% down. The bigger the down payment, the less your monthly mortgage will be. Remember that closing costs and other fees may come out of your down payment.

Interest Rates 

The interest rate you secure will affect monthly payments, so evaluate potential interest rates and how they affect future outcomes. Lenders set interest rates using various factors like the down payment, credit score, the type of mortgage, and the interest calculation method. Federal interest rates also change over time and can affect the interest rates available to you.

To understand how different mortgages and payments will affect you, use the Mortgage Genie Mortgage Calculator