How Much House Can I Afford Based On My Income?

When trying to figure out how much house you can afford, your income is the key figure to consider first and foremost.  If a house isn’t within your income level, you won’t be able to afford it.

You have to have enough left over from your income after all of your necessary living expenses to pay for the house and all the associated costs.  Buying a house is a complicated process, more complicated than renting.

As such there are a lot of costs and fees which you may not immediately think of when trying to figure out how much house you can afford.

When you think about your income, remember to subtract taxes before you calculate anything else.

This may be a given depending on how you make a living, but if you are self-employed and your income level varies from month to month, you’ll need to consider how much you pay in taxes on average and subtract that off the top.

Then you will need to figure out how much of your real income is going toward other expenses and whether all of those expenses are necessary.

What are some expenses to take into account when calculating how much house you can afford based on your income?  After subtracting taxes, subtract food, groceries, travel related expenses, insurance bills you are currently paying, and any loans you are paying off.

Any other regular monthly expenses need to be accounted for as well (hygiene, household supplies, etc.).  You might think these things are no big deal but they do add up fast and you should find out exactly where all your income is going anyway.

If you have expenses which aren’t necessary, you might want to think about getting rid of them.  Of course, you’ll have to weigh them against your desire for the house.  You certainly don’t want to deprive yourself of too much in your life.  This is all about priorities though, and everyone has different priorities.

Why not subtract utilities at this point?

Some utilities you can subtract—like cable or phone services which are the same regardless of where you live.

For other expenses, though, you won’t be able to make an accurate estimate of your monthly payments until you know how much house you’re thinking of buying.  Your water and electric bills will depend partly on the house you buy and how you intend to use it.

Only once you’ve made a list of possible houses can you calculate the potential utilities costs of each of those houses.

After subtracting all your basic living expenses from your income, you’ll see how much income you have left for affording a house (not just the mortgage either, but all associated costs).

If you want to put aside savings, you can subtract that as well—savings are important if you want to get somewhere in your life.  Not everyone can afford to save money and buy a house, so you’ll need to decide which is more important to you if you are in that situation.

This means that how much house you can afford relates to the question of your priorities and your lifestyle as well as your income. 

One key thing to keep in mind when figuring out how much house you can afford is that the answer depends on a lot more than just your income.  What can impact the cost of a house?

Not just its size or its extravagance, but also the neighborhood where it’s located and the urban or rural area where the neighborhood is.  Not to say you should shop for a house in a bad neighborhood, but there are always surprising opportunities out there—just by choosing to live in a rural area or an urban area which is being revitalized, you might be able to afford more house for less money.

If a house isn’t within your income level now, don’t fret—it’s a lot better to calculate whether the house is affordable now (and find out it isn’t) than to invest in a house only to discover later that it isn’t something you can afford in the long run.

Don’t forget your income level may also change—a house is a long-term investment—your job may or may not be a long-term career.  The qualitative nature of your income matters as much as the quantitative nature of your income.

You probably need to either have a very steady job or a lot of career opportunities before you can comfortably buy a house.