And while these rules are more financially conservative, they can help prevent things like foreclosure or being house poor, which basically means not be able to do the other things you really enjoy doing because so much of your income is going towards your house payment. Follow these steps to determine how much you can spend on a home. Keep in mind that the 25% rule isn’t a hard-and-fast one. You should consider your individual financial situation. For example, do you have a high amount of student debt or other debt? In that case, you may want to shoot for a lower percentage of your income when buying a home. In addition to your mortgage, you’ll also need to factor in home insurance, taxes, and home repairs or upgrades, and maintenance. A report by Anji found that in 2021, consumers spend an average of $3,018 on home maintenance and $10,341 on home improvements. This is another reason why you don’t want to overextend yourself with your mortgage payment. Remember, your debt-to-income ratio is the amount of all your monthly debt payments (like your mortgage, credit card payment, car payments, student loan payments), divided by your gross monthly income. You should also talk to the loan officer at your local bank or credit union or mortgage servicer. They can help you determine the mortgage that you can afford, plus what you’ll need during the application process. You should also exercise caution when considering the type of mortgage you choose. Generally speaking, you should choose a fixed-rate mortgage, not an adjustable-rate mortgage. Here’s why: while a fixed-rate mortgage’s interest rate stays the same throughout the life of the mortgage, with an adjustable-rate mortgage, that amount can go up or down.
