Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions — in 15 minutes or less.
This week’s question is from Steve in Denver. He asks: “I’m looking to buy a house in the next year, but I’m not sure what I can afford. How can I know how much house I can afford?”
Know your housing budget. When sorting out how much house you can afford, aim to keep all debt payments — including a mortgage — within 36% of your pre-tax income.
Can’t come up with a 20% down payment? You don’t need to. While you’ll have to pay mortgage insurance as a trade off, you can get away with putting as little as 3% down.
Even if you have the cash, ask if you’re emotionally prepared for homeownership. Having a home can be rewarding, but it’s a lot of work. If you don’t want to handle maintenance or don’t think you’ll stay in your house for at least three years, you might be better off renting.