How much house can I afford?
You can afford a home priced at roughly 3–4× your gross annual income, assuming 20% down and total housing costs (mortgage + taxes + insurance) staying below 28% of gross monthly income. On $150,000 income, that's a $450,000–$600,000 home with $90,000–$120,000 down.
Formula
Max Home Price ≈ Gross Income × 3.5 (conservative) to 4.5 (aggressive). Monthly payment check: PITI ≤ 28% of gross monthly income.
Example
Income $120k, down payment $80k (20%). Afford ~$400k home. Monthly: $2,133 mortgage (6.5%, 30yr) + $400 taxes + $133 insurance = $2,666/mo = 26.7% of $10k gross monthly. Comfortable.
How it works in detail
Lenders use two ratios: the front-end ratio (housing costs / gross income ≤ 28%) and back-end ratio (all debt payments / gross income ≤ 36%). But what you qualify for isn't what you should spend. A more conservative approach for wealth-building: keep total housing under 25% of take-home pay. Factor in property taxes (~1–2% of home value/year), homeowner's insurance (~0.3–0.5%), PMI if under 20% down (~0.5–1% of loan), HOA fees, maintenance (budget 1–2% of home value/year), and utilities. These 'hidden costs' often add 40–60% on top of the mortgage payment.
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How much do I need to retire?
Multiply your annual spending by 25. If you spend $60,000/year, you need $1,500,000. This is the 4% rule from the Trinity Study (1998) — withdraw 4% annually with a 95%+ historical success rate over 30 years.
Should I rent or buy a home?
Buy if you'll stay 5+ years, can afford 20% down without depleting emergency fund, and total housing cost is under 28% of gross income. Rent if you might move within 5 years, live in an expensive market where price-to-rent ratio exceeds 20, or would sacrifice retirement savings to afford the down payment.
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