How Much Home Can You Realistically Afford?

It is important that you know how much home you can afford.  There is an ambitious (high) value and a realistic (low) value.  Your final answer is somewhere in the middle.

The ambitious way to view this is the maximum amount the lender will loan to you.  This is based on a ratio of how much debt you have versus how much income you have.  Debt includes: mortgage payment, car payments, credit card payments, child support, and alimony.  Your credit and savings also factor in to this.  The mortgage payment includes property taxes and HOA fees.  Properties in Seattle have much higher property taxes and some high end condos have $800+ monthly HOA fees.  So you may not be able to afford as much as you think you can afford.

The practical view is to avoid purchasing too much home which will make a monthly payment that is uncomfortable for you.  A good analogy is a credit card with a $10,000 limit.  Just because you have $10,000 in credit available to you does not mean you have to spend the full $10,000 limit.  You will be stuck with a hefty monthly payment to pay off that debt.

Keep in mind you may have this home for several years.  Purchase a home with adequate amenities that will suit your needs now and going forward.  Use this target loan amount as you go out and search for your dream home.  Good luck with the house hunt!