How Much House Can You Afford?

Scott Hammel, CFP®, CRPC®

Buying a home is one of the largest financial decisions most families make.

And when people ask:

"How much house can I afford?"

there are really two different questions.

The first is:

How much will a lender allow me to borrow?

The second — and usually more important — is:

How much should I spend on a house while still having enough flexibility for everything else I want my money to do?

Those numbers aren't always the same.

For many of the families we work with, the conversation isn't even about whether they should buy the house. They've found the home they want.

The financial planning question becomes:

What's the best way to structure the purchase?

That means thinking beyond the mortgage payment and considering the down payment, liquidity, investments, taxes, future income, other financial goals, and what happens after closing.

A Starting Point: The 25–35% Housing Rule

A common rule of thumb is to keep total housing costs somewhere around 25–35% of gross household income.

That generally includes:

• Principal
• Interest
• Property taxes
• Homeowners insurance

It can be a useful starting point.

But we wouldn't make a home-buying decision based on that percentage alone.

Consider two families who both earn $300,000 per year.

One may have:

• $1 million of investments
• significant cash reserves
• rapidly growing income
• no other debt
• substantial annual savings

The other may have:

• very little saved outside retirement accounts
• student loans
• upcoming childcare expenses
• inconsistent income
• limited cash after closing

The same mortgage payment could be perfectly reasonable for one family and incredibly restrictive for the other.

Affordability is about your entire financial picture — not one percentage.

Sometimes Growing Into A House Is Reasonable

We're also not philosophically opposed to someone stretching for the right house.

For a younger family early in its earning years, today's income may not accurately represent what the next five or ten years will look like.

If someone has strong career prospects, a history of increasing income, significant assets outside the home, adequate liquidity, manageable fixed expenses, and room to continue saving, we may be much more comfortable with a housing payment toward the higher end of a traditional affordability range.

You're buying an asset you may own for decades based partly on your financial life today.

Sometimes it is reasonable to grow into the house.

The important distinction is between stretching intentionally and stretching because the numbers were never evaluated.

Your Down Payment Is A Financial Planning Decision Too

One of the biggest misconceptions around buying a home is:

The more money I put down, the better.

Not necessarily.

A larger down payment lowers the mortgage balance and monthly payment. Depending on the loan, it may also eliminate private mortgage insurance.

But there's another side to the decision.

Every additional dollar you put into the house becomes equity you can't easily use elsewhere.

Suppose you're buying a $1 million home and have $400,000 available.

You might put $200,000 down. You might put $300,000 down. You might put the entire $400,000 down.

The $400,000 down payment certainly produces the smallest mortgage.

But it may also leave you with substantially less liquidity.

That money is no longer readily available for:

• an emergency
• renovations
• investments
• a career change
• another property
• starting a business
• travel
• family expenses
• other opportunities

At Apeiron, we generally place a high value on maintaining liquidity.

That doesn't mean everyone should make the smallest possible down payment. Mortgage rates, PMI, cash flow, taxes, risk tolerance and personal preferences all matter.

But we don't view having the smallest mortgage as the only objective.

The goal is determining what combination of mortgage, down payment and remaining assets gives you the strongest overall financial position.

Don't Become House Rich And Liquidity Poor

This is where a taxable brokerage account can become especially valuable.

We often refer to this as a mid-term investment account — the bridge between your short-term cash and long-term retirement accounts.

If most of your wealth is divided between:

Home equity + 401(k)

you may have a substantial net worth without having much money that's actually flexible.

That's one reason we believe high earners should consider building a brokerage account beyond their 401(k).

You can always choose to use those assets later.

Getting money back out of your house can be considerably more complicated.

Liquidity gives you options.

Homeownership Costs More Than The Mortgage

The monthly payment also doesn't tell the entire story.

Homeownership comes with expenses including:

• maintenance and repairs
• property taxes
• insurance
• utilities
• HOA dues
• furniture
• renovations
• landscaping
• unexpected projects

This becomes particularly important when evaluating homes in Dallas, where property taxes and insurance can materially change the actual cost of owning the home.

A beautiful home that technically fits your mortgage budget can still consume significantly more cash flow than expected once everything else is included.

That's why we prefer evaluating the total cost of owning the home, rather than simply asking whether the mortgage payment works.

The Best Mortgage Isn't Always The Smallest Mortgage

There's also an important distinction between debt being available and debt being bad.

For some families, aggressively paying down a mortgage provides tremendous peace of mind.

That's valuable.

For others, maintaining a larger mortgage while preserving investments and liquidity may provide considerably more financial flexibility.

Neither answer is universally correct.

When evaluating how to finance a home, we may consider:

• current mortgage rates
• down payment
• available cash
• taxable investments
• income stability
• future income potential
• upcoming expenses
• tax considerations
• other financial goals
• comfort carrying debt

The decision should fit the household rather than a generic rule.

Buying A Home When You're Self-Employed Or Retired

There's another issue people sometimes discover too late:

Having enough money to afford a home doesn't necessarily mean qualifying for the mortgage will be easy.

This can become particularly relevant for:

• business owners
• self-employed professionals
• recent retirees
• people with substantial investment assets but lower earned income
• households with nontraditional compensation

Someone may have substantial assets and still find that traditional mortgage underwriting doesn't view their financial situation the same way they do.

That doesn't necessarily prevent the purchase.

Experienced lenders may have alternative approaches based on assets or other forms of income.

But it makes planning ahead important.

If you're approaching retirement and expect to purchase or finance a property, evaluating the mortgage before your W-2 income disappears may make the process easier.

What If You've Already Decided To Buy The House?

This is often the more realistic financial planning conversation.

Many clients don't find a house they love and come to us asking:

"Can we buy this house?"

More often, the conversation is:

"We found the house. What's the best way to do this?"

That's where financial planning becomes valuable.

Maybe the question is whether to put 20% or 40% down.

Maybe it's whether to sell investments.

Maybe it's how much cash to retain after closing.

Maybe it's how to fund renovations.

Maybe it's whether to temporarily use a line of credit while another property sells.

Maybe it's how the new payment changes monthly savings.

The goal isn't to make every life decision based on a spreadsheet.

It's to help structure the financial side of the decision so you can enjoy the house without unnecessarily compromising everything else you're trying to accomplish.

How Housing Fits Into The 60% Solution

Housing is generally a household's largest fixed expense.

That's why it plays such an important role in our 60% Solution for thinking about cash flow.

The basic concept is simple:

Keep fixed expenses manageable enough that you still have room to:

• save automatically
• invest
• travel
• enjoy your lifestyle
• absorb unexpected expenses
• pursue future opportunities

You don't need to optimize every dollar.

You need enough margin that your financial life doesn't feel fragile.

Our Pay Yourself Too reverse-budget strategy takes that concept a step further by creating a system for intentionally separating lifestyle spending from long-term wealth building.

A Home Can Be A Great Purchase Without Being Your Best Investment

It's also important to separate two ideas:

Your home can be financially valuable without needing to be the best-performing investment you own.

Homeownership can provide:

• stability
• control over your environment
• a place to raise a family
• community
• predictability
• enjoyment
• potential long-term appreciation

Those things have real value.

But for most households, long-term wealth creation still comes from a combination of career and income growth, consistent saving, diversified investing, tax planning, disciplined financial behavior, and time.

You don't have to justify buying the house you love by pretending it's the optimal investment.

Sometimes it's worth buying because it's where you want to live.

The financial plan simply needs to support it.

The Bottom Line

So, how much house can you afford?

The 25–35% rule can give you a starting point.

Your lender can tell you what you're qualified to borrow.

But neither tells you exactly what you should spend.

The better question is:

How do we buy the home we want while preserving enough flexibility to accomplish everything else that matters to us?

For some families, that means buying less house.

For others, it may mean intentionally stretching into a home while they're early in their earning years.

And for many affluent families, the most important decision isn't the purchase price at all.

It's how to structure the purchase — how much to put down, how much liquidity to retain, what assets to use, and how the new home fits alongside the rest of their financial life.

That's what financial planning can help answer.

Related Resources

• 5 Things No One Tells You About Buying a Home
• The 60% Solution: A Simpler Way to Think About Budgeting
• Pay Yourself Too: A Reverse Budget Strategy for Building Wealth
• Why High Earners Need Brokerage Accounts Beyond Their 401(k)

If you're preparing for a home purchase and want help evaluating how it fits alongside your investments, cash flow and long-term goals, start a conversation with Apeiron Planning Partners.