Mallory Asks A Question: How do I know how much to spend on my house?

Guys, it turns out Ashley isn’t the only one who has questions at Wela. It’s my turn to step into the spotlight and ask Eddie my financial questions!

So a little background on this week’s questions, my hubby, Dan, and I bought a starter house a few years ago, so we’re planning to move… at some point. TBD on that moving date. While we might not be ready to nail down a moving date, though, we are already thinking about location, size, and all the fun details like finishes we want in our next house. (It’s hard to be on Pinterest and not get excited about these things!)

Now the issue with planning for a future on Pinterest and Zillow, though, is deciding if it’s actually reasonable. I mean… do I really need a fixer-upper historic home and to have a backyard she-shed? Before I start spending all our moo-la on this “Pinterest dream home” I figure it’s time to ask Eddie:

How do I know how much house I can afford when I’m looking to buy one? Is there a general rule of thumb? Should I listen to how much the bank says I can afford?

Related: Why Buying A House Is More Economical Than Renting 

Eddie Goepp, COO of Wela

Figuring out how much house you can afford can be very confusing. There are conflicting pressures from all different angles…you want to live near your friends, you want to live near good schools, restaurants, parks, etc. The bank says they’ll lend you “X”, your advisor says you should spend no more than “Y”, and all the while, your real estate agent (the expert you’re leaning on in this arena) is compensated based on the purchase price of the home!

At the end of the day, try to stick to two numbers, 20 & 28. The first one, 20, is the percentage that you should aim to use as a down payment. If you buy a $250,000 home, you should put down $50,000. Save until you hit that number. The second, 28, is the maximum percentage of your gross income you should spend on PITI. That’s Principal, Interest, Taxes and Insurance. So if your household income is $100,000, then your total monthly payment should be no more than $2,333.

And remember, just because they’ll lend it, doesn’t mean you should borrow it!

It turns out Ashley was on to something. Asking Eddie really is easier than just Googling it myself! It’s time to go and crunch some numbers to figure out how Pinterest-y my next home can be without breaking the bank.

If you have a financial question that you want to ask Eddie, ask here!

Related: When You Should Not Buy A House