Buying a home is an exciting step, but figuring out how much house you can really afford isn’t always easy. Unfortunately, many bankers and realtors often aren’t much help. They frequently push bigger loans or bigger homes on you because it fattens their bottom line.

So what’s the best way to determine a wise home-buying limit? It’s by doing some calculations on your own, taking key personal information into account. Here are three smart ways to know how much house you can really afford.


1. Use mortgage calculators only as a starting point

When would-be homeowners need to figure out how much of a mortgage they can afford, or what size home loan they might qualify for, many of them turn to online mortgage calculators for help.

Unfortunately, some of the crappy online calculators you might find on the Internet won’t give you a clue. There are some home calculators that are good, but many are not.

The bad ones only tell you what a house payment is going to be based on the price of the house, your interest rate, and the down payment you have. But good calculators are more sophisticated than that. They factor in contingencies and let you run multiple “what if” scenarios.

Also, very few calculators will take a holistic look at your finances. Sadly, most mortgage professionals won’t do this either. But then again, that’s not their job. That’s your responsibility.

Only you know whether or not your current income is likely to remain relatively stable in the future based on your own personal or family choices.

For example, only you know if you’re planning to have a baby in the next year or two—or whether or not you already have one on the way. Such a major life event will change your finances dramatically. So you need to be conservative in estimating how much house you can truly afford.

Other personal plans are important too.

Are you planning to go back to college, or are you looking to tie the knot or start your own business in the next few months or in a year or two? Any of these are major events—and they all come with a significant financial cost.

To get a more pragmatic picture of your finances and better calculate a true “safe zone” for a mortgage, try this trick: take the typical online calculator, or the standard affordability advice offered by a mortgage rep, and then slash about 25% off that figure.

The end number will probably produce a far more realistic and sensible portrait of what you can afford—especially because unexpected things happen in life, and you may have other personal plans that will eat away at your cash flow in the future.

2. Think beyond PITI

Realtors and mortgage professionals love to make you think a home is “affordable” if you can allegedly afford the four primary costs associated with a house: Principal, Interest, Taxes, and Insurance, or PITI.

Well, before you have a PITI party and start celebrating how big a mortgage you can qualify for, put your practical hat on and think about the true cost of homeownership.

I tell people: “It’s a pity it’s not just PITI.” And what I mean by that is that you must calculate the real cost of homeownership, because it goes way beyond Principal, Interest, Taxes, and Insurance.

These are just some of the expenses you can incur when you buy a home: appliances, carpets, flooring and rugs, furniture, gardening supplies, home improvements (additions, renovations and upgrades), lawn care, lighting fixtures, maintenance, moving costs, repairs, supplemental insurance (earthquake, flood, hurricane or tornado coverage), utilities, and window treatments

Do you get my point? Being a homeowner is expensive—so don’t kid yourself about the immediate and the ongoing costs of homeownership.

3. Do the financial breakup test

If you are married or have a partner, figure out, realistically, whether you could still afford the house on your own if your spouse or significant other packs their bags and leaves. In other words, could you comfortably buy this home and pay for its ongoing costs on one salary? Be honest with yourself about this.

And remember: your joint debts owed will probably go far beyond a mortgage.

So when you think about how many bills one of you could handle on your own, think about the house note and all other debts too.

At a maximum, your combined DTI, or debt-to-income ratio, should be no more than 43%. But consider what your DTI would be like on your own as well.

Since January 2014, most banks have begun to adhere to guidelines imposed by the federal government to ensure that lenders avoid making risky loans. New regulations concerning so-called “qualified mortgages” or “QM” are now in effect.

One aspect of QM loans is that they are governed by something called an “ability to repay” rule, which requires lenders to examine a person’s income, debts, savings and assets to be sure that the borrower can really pay back a home loan.

So with QM loans, a borrower’s total debt load (including the person’s mortgage) can’t exceed 43% of his or her income.

3. Avoiding Foreclosure

Remember, the goal of homeownership isn’t to barely get approved and struggle to make it to the closing table, just so you can get the keys and say, “Yes! We made it!” even as you stumble into a new house totally broke.

That’s a hollow victory, and you’ll soon regret your homeownership decision. Instead, make sure your cash is in order before you buy.

Do you have the funds for an adequate down payment? Will you be able to pay closing costs without liquidating all your assets? Will you have a cash reserve and a decent cash cushion left over after you get into the house? If you can’t answer “yes” to all these questions, then wait to buy.

There’s no shame in renting until you’re ready. After all, when you finally are ready to buy, you’ll be a happy homeowner, not one who is constantly cash strapped and certainly not one who winds up in foreclosure.

And if there’s one thing that the housing meltdown and recent foreclosure crisis taught us, it’s that not everyone should buy a house.

There are lots of rights and responsibilities that go along with homeownership. And as I explain in my book, Your First Home, if you’re not adequately prepared to handle a home, you could be setting yourself up for a big financial catastrophe.

Still, I realize that homeownership remains a huge part of the American Dream—especially for a lot of African-Americans. So follow the three tips outlined above, and at least you’ll know how much home you can truly afford.

Lynnette Khalfani-Cox is a personal finance expert and co-founder of the free financial advice site, Follow Lynnette on Twitter @themoneycoach and Google Plus.