Q: My husband and I are ready to buy our first home. We have read numerous articles about how much house we can afford and found most advice contradictory and confusing. Not one article included a real example showing how the math actually works from start to finish. We believe a clear, realistic example would help buyers like us far more than general guidelines. Could you walk us through one?
A: You have identified a genuine gap in consumer real estate advice. Guidelines are everywhere. Honest, real-world examples are almost nowhere. Let’s fix that.
Meet Tom and Sarah. Combined gross annual income: $85,000, or $7,083 per month. They carry a car payment of $450 and student loan payments of $300 monthly. They believe they are ready to buy.
The spending audit. Before running a single mortgage number, they pull three months of bank and credit card statements. What they find surprises them. Dining out runs $600 monthly. Streaming and subscriptions total $180. Entertainment and miscellaneous add another $400. Fixed and discretionary outflows total $2,630 monthly, before any housing cost. Two items are immediately cuttable. The car payment is not, with two years remaining.
The trial run. They commit to 90 days of living as if they already own a home. Dining drops to $250 monthly. Subscriptions fall to $50. They bank the $480 monthly savings as proof of discipline. This step is not optional, it is the most honest test of readiness available to any buyer. If they cannot sustain the cuts voluntarily, a mortgage will not make it easier.
Anchoring to income. At $7,083 gross monthly income, the 25% to 28% guideline produces a range of $1,771 to $1,983 monthly for total housing costs. Tom and Sarah choose $1,800 as their ceiling, conservatively, because the car payment still has two years to run.
Isolating the mortgage payment. From $1,800 they subtract estimated non-mortgage costs: property taxes of roughly $250 monthly on a $250,000 home, homeowner’s insurance of $100, and a maintenance reserve of 1% of home value annually – approximately $208 monthly. That leaves $1,242 for principal and interest.
Working backward to a price. At 7% on a 30-year fixed mortgage with 5% down, $1,242 monthly supports a purchase price of approximately $185,000 to $190,000. Here is a Dear Monty article the traditional way that you may also find helpful.
The stress test. If Sarah’s income disappears for six months, the household drops to $4,200 gross monthly. At 28%, that covers the mortgage payment alone, leaving taxes, insurance, and maintenance unpaid. Their conclusion: build a larger down payment, or clear the car loan first.
The honest result. Tom and Sarah can responsibly afford a home in the $185,000 to $200,000 range, if they sustain their spending discipline. In a low-inventory market that price point will be competitive. It may mean waiting 18 months.
That is not a setback. That is the plan working exactly as intended.
