Dreaming of buying a new home? Whether it’s your first or one of many home purchases, it’s a big deal with a big price tag. According to a 2023 report, homes have become “unaffordable” for the average American. However, your dream of homeownership isn’t impossible. We’ve got 7 tips to help you find out how much home you can afford.

1. Follow the 28% rule. This will help you determine what home price is affordable based on your income. The 28% rule states that your monthly mortgage payment should be no more than 28% of your gross monthly income. Make sure you are only considering the income you receive on a consistent basis. Also, it’s important to remember that owning a home comes with additional bills so keep that in mind.
2. Consider other expenses. Homeownership comes with many other expenses other than the monthly mortgage payment. This includes home insurance, utilities, repairs, routine maintenance, and property taxes. Take all of these expenses into consideration as you calculate an affordable mortgage payment.
3. Save for a larger down payment. If you have a large down payment, it will help to lower your monthly mortgage payment. If you are providing less than 20% down, your lender will require Private Mortgage Insurance (PMI) to protect the loan in case you stop making mortgage payments. This additional cost is added to the mortgage, which increases your monthly payment. PMI should be removed once the property has at least 20 percent available equity.
4. Get pre-approved. This will tell you exactly what mortgage you can qualify for in your current situation. With pre-approval, you will know your exact price range, which helps you and your realtor focus on properties that work for you.
5. Buy a starter home. If you are entering into the homeownership market, buying a starter home with a good resale value can be the key. Starter homes are usually smaller and not as expensive as brand-new developments. Five years is the suggested average amount of time to stay in your home before upgrading but there are a lot of different variables.
6. Negotiate appliances. If you are moving from an apartment, buying a home comes with additional expenses such as appliances. If the potential home has appliances, see if you can negotiate for them as part of the home purchase. You can always upgrade later but it helps you save money initially and avoid an immediate expense.
7. Emergency savings. Home repairs are inevitable so it’s important to plan for the unexpected. As you calculate your mortgage payment budget, build room in your budget for your emergency savings account so you’ll be ready.

Remember – Your first home may not be a perfect house. It might just be what you can afford where you need to be at the moment.