Many financial experts recommend you spend no more than 30% of your gross monthly income on housing expenses. And, they recommend spending no more than 35% of your gross monthly income on debt which includes your mortgage. But are there more factors you should consider when deciding if you can afford a specific home?

Here are a few questions you should ask yourself before you purchase your next home.

Does Buying a Home Make Financial Sense?

It may or may not, depending on some financial, career, and lifestyle factors. Your savings, credit, salary, level of disposable income, and your housing preferences all count. Consider how long you plan on living and working in a particular geographic area. Does it make sense to put down roots, or do you value the freedom to get up and go.

If you are serious about becoming a homeowner, you should have three priorities: keeping your credit score above 700, saving up the down payment, and getting pre-approved for a mortgage.

Calculate How Much Home You Can Afford

The rules of thumb are fairly simple. If you intend to assume a 30-year fixed-rate mortgage, your monthly housing expenses should amount to no more than 30% of your monthly gross income.

For Federal Housing Administration (FHA) loans, the general rule is that the mortgage payment should be less than 31% of the buyer’s gross monthly income. For Veterans Administration (VA) loans, the rule is that the debt-to-income ratio should not exceed 43% of gross monthly income.

How to Save Enough for a Down Payment?

If you are serious about buying a home, you should be saving money each month for that goal. Most people aim to put 20% down so they can avoid paying private mortgage insurance, but many buyers do purchase a home with 10% or 5% down while assuming the bill for private mortgage insurance (PMI).

With a standard FHA loan, all you need to put down is 3.5% of the purchase price. VA loans do not require a down payment whatsoever and their interest rates compare to those of the best conventional home loans. That said, your goal should be to put more down than the bare minimum as this could cause stress for you in the near term if the real estate market sours.

In many real estate markets, VA and FHA financing limits on conventional home loans make it easier for buyers to afford a bit more of a home. They top out at $417,000 in most metro areas but rise to $625,500 in more expensive areas.

Hesitant About a 30-Year Loan?

Many home buyers who think they will eventually move up or move on choose a 15-year mortgage or an adjustable-rate mortgage (ARM). The argument for 15-year mortgages and ARMs is simply stated: while you will borrow the same amount, either way, you will borrow it for twice as long at a higher interest rate with a 30-year loan. So, if you don’t see yourself living in the home your about to purchase long term, the shorter-duration loan may be worth considering.

How do You Know if You Aren’t Ready to Buy?

Look for some telltale sign. Do you suspect you will live somewhere else in five years? Are you having a hard time deciding whether you want to live in a single-family home, townhome, or condo? These are signals to refrain from buying just yet.

Typically, lenders want your total debt load (mortgage + consumer debts) to be less than 36% of your gross income. Is yours higher than that? Then reconsider committing to a home loan. Your household income might be too low to buy. While you may have enough money for a down payment and closing costs, you may not earn enough to handle continuing costs like mortgage payments, homeowner insurance, association fees, and property taxes.

Properly furnishing and maintaining a home may take more money than you think. Also consider if you plan on doing any work to renovate the property prior to moving in. The costs of home ownership can add up fast, it’s all the little things that ultimately add to your overall expense. There is also the cost of a home inspection, a highly recommended move before buying.

If you have a credit score of 650 or less, a mortgage lender may demand a larger down payment or higher fees than you anticipate. If your score is below 600, you may be out of the running for a loan all together. FHA loans are an exception. Buyers with FICO scores below 600 have qualified for them. If you have spent less than two years at your job, that could also discourage a lender from issuing a mortgage to you.

Is Buying a Home the Key to Moving up Economically?

For some people, it’s an important step. Some real estate investors urge people to buy, if possible, rather than rent. Your decision to buy should not be made lightly or simply to keep up with your peers. In many situations it can prove to be a far better decision to rent rather than to buy. Do the math and think about how the commitment of owning a home aligns with your life and financial goals.

The Bottom Line

So, how much home can you really afford? It depends on your financial situation. If you are still unsure, you should consult with your financial planner for guidance. Your financial planner can help you put all of the pieces of your financial puzzle together and determine where, and when, buying a home fits.