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The most expensive purchase the average person makes in their life is a home — so it’s a stressful endeavor, to the say the least. The current state of affairs isn’t making it any less stressful.

With so much economic uncertainty, it’s understandable if you’re hesitant about moving or making your first home purchase. But you can assess your home-buying budget without committing to anything. And if you decide you’re not ready, you can take steps now that will help you be better prepared in the future, like strengthening your credit or saving for a bigger down payment.

This is a tactic an increasing number of home buyers and sellers have taken during the pandemic. Across the U.S. this spring, the number of new listings and homes for sale went down year over year. At the same time, lenders began scrutinizing borrowers’ employment status more closely and raising requirements for credit scores and down payments. Many buyers have been forced to the sidelines.

As a chunk of the housing market shifts into “wait and see” mode, now is a great time to be proactive with your home-buying budget,

Why Having a Budget Is Important

Only once you have a sense of your overall budget — how much you have coming, going out, and in savings — can you consider what you might spend on a new home purchase.

“The best advice I give is to buy a home you can afford,” says Eric Chen, a financial consultant and associate professor of business administration at the University of St. Joseph. “But you’re not going to know what you can afford until you budget.”

Pro Tip When you’re calculating your home-buying budget, leave room for unexpected expenses. The most expensive home you can afford isn’t necessarily the one you should buy.

How Much House Can I Afford ?

Your bank or mortgage lender can help you estimate how much your new home purchase will cost in terms of monthly payments, ongoing expenses like private mortgage insurance, and up-front fees such as closing costs. You can get ahead of the process by using a mortgage payment calculator. Be sure to have your income, estimated down payment, and other financial information ready to go.

Note that the number you are approved to spend by your lender is the maximum you should consider paying for a home. You’re probably better off shooting for an amount below the maximum. “I always recommend people try to avoid buying right at the high end of their budget,” says David Pipp, who runs the family financial website Living Low Key. “You don’t want to be strapped for cash and have an emergency come up you can’t pay for.”

“A good rule of thumb to follow is the 28/36% rule,” says Austin Weyenberg, founder of the personal finance blog The Logic of Money. “This means your monthly mortgage payment should be no more than 28% of your pre-tax income, and your total debts should be no more than 36% of your total pre-tax income.”

Molly Ford-Coates, an accredited financial counselor and the founder and CEO of Ford Financial Management, is even more conservative. “I tell people their housing expenses shouldn’t exceed more than 25% of their gross monthly income, and their total mortgage should not exceed more than two to two and a half times their annual income.”

In the end, the answer to the question “how much mortgage can I afford?” is a personal one. If you’ve done the necessary homework to ensure you’re not getting in over your head and have enough money in reserve for emergencies, you can come up with a reasonable number that will allow you to start your home search.

Interest Rate Impact on Your Budget

Your interest rate plays a bigger role in your payment than may you realize. Consider this example, using our mortgage calculator:

Payment Details Payment Amounts House price $300,000 Down payment $60,000 (20% of the purchase price) Loan period 30-year fixed rate Your monthly payment at 2.500% $1,241 Your monthly payment at 5.000% $1,581 Savings per month with lower interest $340

Imagine being able to put away an extra $340 in savings each month, which would yield you savings of more than $4,000 annually. For this reason, it pays to shop around for the best interest rates.

The Final Word

Know the elements that go into your mortgage payment and what you can save by shopping for better interest rates.

Be realistic: All our experts suggest you shop below the maximum amount you can qualify for. Consider your lifestyle, your existing debts, and current and potential income when shopping for homes. If you buy a home taking every penny of your disposable income, you may be caught short in an emergency.