How Much House Can You ACTUALLY Afford?

Apologies for no emails the last two weeks, work has ramped up here at the end of the year but we are finally approaching the holiday break (*sets OOO status).

Despite work being annoying, I’m still getting my investments in. Here are my most recent buys incase you missed it on X.

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How Much House Can You Actually Afford?

White picket fence, dog barking, and the smell of a freshly fired up BBQ pit.

Welcome to the American dream of home ownership.

The problem with this prestigious title of “home owner” is that folks often get in over their heads and end up being house poor.

As someone who just submitted an offer on their first home last week, I’ve been researching different “finance” rules to nail down our price range.

To make sure you (and myself) don’t end up in the poor club, we are going to cover three rules that will ball park how much house you can afford.

Let’s get into it 👇️ 

The 28% Rule

Pretty straight forward, but this one essentially says you shouldn’t spend anymore than 28% of your gross monthly income (before taxes) on your mortgage, insurance, and property taxes.

The formula for your payment?

Monthly income x .28 = Max mortgage payment

(yes I know it doesn’t take a math genius)

If you want to be even more conservative use your after tax income (net income). Same formula above, just use the number that actually hits you bank account each month.

The 2.5x Rule

If you want to do some easy mental math then the 2.5x rule is for you.

Simply take your gross income and multiply is by 2.5. That number is your affordability limit. So if you make $100K a year, you’d be looking at homes below $250K.

Obviously the applicability of this rule is going to depend on two things. First is your income, and second is the cost of living in your area.

The 30/30/3 Rule

This one gets a little more in depth but I like it because it is a play on both of the rules mentioned above.

Drum roll please…..

Introducing the 30/30/3 rule.

• 30% or less of your gross income to your mortgage payment.

• Have 30%+ of the homes value in liquid assets (cash, stocks, etc).

• Don’t buy a house more than 3x of your annual income.

Pretty simple, but this one is probably my favorite from the list because of the multiple factors it takes into account.

Conclusion

Hopefully these rules will help you from becoming house poor. While the rules aren’t perfect, taking a look at all of them can give you a good idea of what price range you should be looking into.

If needed, here are a couple links to resources I’ve used during our home search.

• Mortgage Calculator

• Buy vs Rent Calculator

Let’s chase that American dream (responsibly). ~ Cade

Chump Change Picks

2024 Finance Rewind - The year of AI, Trump, and Crypto is almost over. Here is an entertaining video recapping all of the fun we had. Going to show this to my kids one day and say “back when I was a boy.”

Pre-Tax vs Post-Tax Retirement - Great thread by my man Zach on why having a 100% pre-tax retirement account might be a trap. Worth checking out if you aren’t sure which tax advantaged accounts are right for you.

Best Memes

Don’t ever try to predict short term market moves. Ever.

If this is you, it’s time to index and chill.

Moms don’t get it smh.

Nothing in this email is intended to serve as financial advice. Do your own research. Thanks for reading, if you have any questions, comments, suggestions, etc. about the email don’t hesitate to send me a reply.