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What are the steps in buying a home? Step Two

Step 2: Find Out How Much House You Can Afford

Homes vary widely in overall price, whether that’s because of the purchase price or because of different up-front or closing costs. To make sure your mortgage loan is manageable, lenders look to see that monthly housing expenses (including monthly mortgage payments, homeowners’ insurance, property taxes, and sometimes homeowners’ association fees), do not exceed 28 percent of your gross monthly income.

This math is important because household expenses exceed these costs and include everything from maintenance, lawn care and utilities to food and transportation.

Let’s dispel a common misconception now: You do not need a 20 percent down payment to buy a home—though buying one with less will require private mortgage insurance (PMI) or a second loan. Having a 20 percent down payment is conventional, but it is not required.