To accurately determine what you can afford for a house payment, start by understanding your current budget. Calculate your average take-home pay, then review the last few months of your bank and credit card statements to see where your money is going.
Take note of what’s left unaccounted for in relation to your take-home pay; that’s your discretionary spending. Are there areas where you’re willing to cut back to afford a higher house payment or to save for a bigger down payment? Maybe skip the daily Starbucks? Eat out less?
But be cautious—don’t cut back too much that you become what I call “house poor,” where you have a beautiful new home but can’t afford date nights, lunches with co-workers, or a cute new pair of shoes.
Avoid being house poor!
