Finding Your Home Sweet Spot: How to Determine What You Can Afford
One of the most common questions we hear is: “How much house can I actually afford?” The answer involves more than just your income. Understanding your true home-buying budget before you start shopping saves you from heartbreak, financial stress, and wasted weekends touring homes that don’t fit your financial picture.
The Starting Point: Your Gross Monthly Income
Mortgage lenders look at your gross monthly income (before taxes) as the foundation for what you can borrow. From there, they calculate your debt-to-income ratio — the percentage of your gross income that goes toward monthly debt payments including your future mortgage. For most conventional loan programs, lenders want your total monthly debt obligations to stay below 43-45% of your gross income.
Beyond the Mortgage: The True Cost of Homeownership
Property Taxes in Texas
Texas has no state income tax, but property taxes are significant. In Travis County (Austin), effective property tax rates typically run between 1.8% and 2.5% of assessed value annually. On a $450,000 home, that’s roughly $675-$938 per month added to your housing cost. This surprises many buyers relocating from other states.
Homeowners Insurance
In Central Texas, homeowners insurance typically runs $150-$300+ per month depending on the home’s age, location, and coverage level.
HOA Fees
Many Austin-area communities have HOA fees ranging from $30 to $300+ per month. These count in your debt-to-income calculation and can meaningfully affect what you qualify for.
Maintenance and Repairs
Budget 1% of your home’s value annually for maintenance. On a $450,000 home, that’s $4,500 per year or about $375 per month. This isn’t part of your mortgage payment, but it belongs in your budget planning.
How Credit Score Affects Affordability
Your credit score directly impacts your interest rate, which impacts your monthly payment, which impacts how much home you can afford. Over a 30-year loan on a $400,000 balance, even a 0.5% rate difference can mean tens of thousands of dollars in total interest paid. If your credit has room to improve, taking a few months to work on it is often worth it. Let’s walk through your credit picture together.
The 28/36 Rule: A Simple Sanity Check
Your housing costs shouldn’t exceed 28% of gross monthly income, and total debt obligations shouldn’t exceed 36%. Modern lending is more flexible than this rule suggests, but it’s a useful starting point. Ask yourself: would this payment cause financial stress if something unexpected happened?
Down Payment: How Much Do You Actually Need?
Conventional loans can go as low as 3% down for first-time buyers. If you’re putting down less than 20%, you’ll pay private mortgage insurance (PMI) — typically 0.5%-1.5% of the loan amount annually. We help buyers think through the trade-offs between putting more down vs. preserving cash reserves.
What We Recommend: Start With a Real Pre-Approval
Online calculators are a starting point, but they don’t know your full financial picture. A real pre-approval gives you a concrete number you can shop with confidence — and protects you from falling in love with a home above your actual qualification. Get started here.
Frequently Asked Questions
How do lenders calculate how much I can borrow?
Lenders look at your gross monthly income, existing debts, credit score, employment history, and assets to calculate your debt-to-income ratio and maximum loan amount.
Is the number I can borrow the same as the number I should borrow?
Not necessarily. Just because you qualify for a certain amount doesn’t mean taking the maximum is the right move for your lifestyle and goals. We help you think through what payment actually feels comfortable.
Do property taxes really matter that much in Austin?
Yes — Texas property taxes can add $600-$1,200 per month to your housing cost on a mid-range Austin home. Always factor them in from the start.
How does my credit score affect how much home I can afford?
A higher credit score typically means a lower rate, a lower monthly payment, and the ability to comfortably afford a higher-priced home. Even a small improvement can make a meaningful difference.
Should I get pre-qualified or pre-approved?
Pre-approval is significantly stronger and what sellers take seriously. Let’s get you pre-approved.
Ferrando Financial LLC | Mortgage Austin | NMLS# 2403080
Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend. Loan approval is subject to credit approval and program guidelines. Rates and terms vary and are subject to change without notice.
