How much house can you afford? Take your monthly take-home pay and divide it by four. Ta-da! That’s how much of a monthly payment (including principal, interest, homeowners insurance, and HOA fees) you can afford on a house with a 15-year fixed-rate mortgage. (Anything more than 25%, and you run the risk of being house poor!) Our free mortgage calculator will give you a good look at the monthly payment you can expect for different home prices. How much of a down payment do you want to make? If you’re a first-time home buyer, you’ll want to save up a down payment of at least 5–10%. But if you can swing a 20% down payment, that’s even better—it’ll keep you from having to pay for private mortgage insurance (PMI), which can be pricey. Plus, a bigger down payment means smaller monthly payments on your mortgage. Who doesn’t love that? And don’t forget about extra money for closing costs and any other expenses that could pop up during the home-buying process. When do you want to buy a house? The way you set up your budget for buying a house will depend on when you’re planning to buy. For example, if you’re on the fast track to buy a house in 10 months, you’ll need to save more aggressively to reach your down payment. But if you don’t want to buy for a few years, you don't have to be quite as intense. Next, it’s time to do some math (hooray!) to figure out how much money you’ll need to save each month to reach your goal. Divide the amount you plan to put down by the number of months you plan to save. Step 1: Set Your Savings Goals The first step to budgeting for a house is figuring out your savings goals. Here are three easy questions to get started. Let’s look at an example to see how this works. Let’s pretend a married couple who each makes a $50,000 salary have a combined monthly take-home pay of $6,250. They decide to get aggressive and save up a 28% down payment over the next two years, so they can afford the monthly mortgage on a $200,000 house (with a 5% interest rate). Here’s what their savings goals would look like:
Home price goal: $200,000 Down payment goal: $56,000 (28%) Timeline goal: Two years/24 months Monthly savings: $2,333
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