How much house can I afford? A budget you can live with

Step 1: Find the monthly payment you can carry

Start with your real spending, not a guess. Pull three months of bank and card statements and total everything except rent and renter's insurance. Subtract that from your take-home pay and from what you want to save each month for retirement and emergencies. What is left is the most you could put toward a full housing payment without cutting anything else.

That number is a ceiling, not a target. A payment right at the ceiling leaves no room for higher utility bills, repairs or a slow month. Many buyers choose a target somewhat below it and treat the gap as a buffer.

Step 2: Turn the payment into the full monthly bill

A housing payment is more than principal and interest. Add property tax, homeowners insurance, mortgage insurance if your down payment is under 20 percent on a conventional loan or you use FHA, HOA dues if any, and a set-aside for maintenance. Utilities often rise when you move from an apartment to a house, so include the difference.

The chart above shows that example as bars. Principal and interest is the largest line, but the other four lines together add about half as much again.

Step 3: Check the lender's ratios

The CFPB defines a debt-to-income ratio as all your monthly debt payments divided by your gross monthly income. Lenders look at it with and without the new housing payment, and limits vary by loan type and lender.

In the Reyes example, the housing payment of $2,451 is 35 percent of $7,000. Adding the $400 car payment brings total debts to $2,851, or about 41 percent. Whether that is acceptable depends on the program and the rest of the file. The more useful question for the household is whether 41 percent of gross income leaves enough of their take-home pay. The ratio calculator in the credit and budget guides lets you test your own numbers.

Step 4: Plan the cash

Cash is a separate budget. For the Reyes example, 5 percent down is $15,000. Closing costs and prepaid items depend on the place and the lender; the Loan Estimate shows them. Add an earnest money deposit, which usually counts toward the cash at closing rather than on top of it, an inspection fee, moving costs and early purchases such as window coverings or a lawnmower.

Then set a cushion that you will not touch at closing. The CFPB reminds buyers to think about all the upfront costs, including repairs needed right away. A cushion turns a broken water heater from a crisis into a nuisance.

Step 5: Stress-test the result

Run the same price at a rate one percentage point higher, with property tax 10 percent higher, and with one income reduced if you are a two-income household. If the payment still fits, your range is resilient. If it does not, lower the price or raise the down payment until it does. This is also the moment to compare your range with what you could rent, because waiting can be a sound choice.

From budget to price range

Use the calculator below to work backward. Enter a price, down payment, rate and term, then add your quotes for tax, insurance, mortgage insurance and dues. Adjust the price until the total matches your target payment. The result is your top price. Write it down and share it with your agent before you tour, because the right home at the wrong price is still the wrong home.

When you have a range, carry it into the preapproval file. Ask lenders to price loans at your number, not just at the maximum they could approve.