Oct 6, 2025
Buying a house has become really hard, with Realtor.com reporting that just 28% of homes on the market are affordable for a typical household. (1)
Even if you aren't a typical household, you may have to stretch to buy — and this can be tough, as you don't want to put yourself in a position where you’re left house poor.
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Say, for example, you have a household income of $200,000, no debt, are currently spending $2,500 per month on rent and are looking to buy a home in the $600,000 price range. When you take property taxes and other costs into account, buying a property at that price would likely wipe out around 40% of your take-home income.
Is that too much? Or can you go ahead and make the purchase?
Running the numbers on your home purchase
The first thing to do when deciding whether a home purchase is affordable is to take a close look at the numbers.
Let's say, for example, that your household makes $200,000, resulting in a take-home pay after taxes of around $11,500 per month. You are currently paying $2,500 in rent, not including utilities, and are looking at purchasing a $600,000 house with a 10% down payment of $60,000.
Your monthly payment would come in at around $4,572.63, assuming a 7.00% interest rate, with the payment equal to:
- $3,592.63 in principal and interest payments.
- $636 in property taxes.
- $200 in homeowner's insurance costs.
- $144 in private mortgage insurance (PMI).
With $11,500 in take-home pay, you'd be spending around 40% of your available funds. You'd also be adding $2,072.63 to the amount you currently pay each month for housing — and that doesn't include any extra costs if your utilities are more expensive, your commute is longer or if you have home repairs that need to be made.
Many experts recommend saving around 1% per year of your home's value for repair costs, which, in this case, means $6,000 per year. Add that extra $500 per month to your payments, and you are now up to about $5,073 per month — leaving you with just $6,427 to spend and save.
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Is it a good idea to spend so much of your income on your house?
Spending 40% of your income on your house is not necessarily a good idea because it's going to make it harder to do other things.
Most experts recommend limiting fixed costs to 50% of your income, spending 30% on discretionary expenses and saving 20%. If you’re devoting 40% to housing costs alone, not including utilities and home repairs, it's going to be really hard to stay within these limits. You could either end up saving less or having to sacrifice non-essential expenses such as entertainment, eating out, vacations, non-essential clothing and electronics.
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Wells Fargo recommends that debt payments don’t exceed 35% of income, (2) and the Consumer Financial Protection Bureau says mortgage debt alone shouldn’t exceed that amount. (3) Even with no other debt, you're above the 35% threshold if you are committing to a housing payment equal to 40% of what you're bringing home.
Not only will you potentially have to scrimp and save to afford this, but if you want to make lifestyle changes, such as one parent staying home with kids or switching to a less high-pressure job, you won't be able to, since you've locked yourself into a high housing payment.
You should think seriously about whether you are ready to make these major sacrifices, or whether you should explore other options like:
- Buying a less expensive home.
- Saving up a larger down payment before buying.
- Waiting for mortgage rates to fall so monthly payments will be lower.
If you're on the fence, it can be a good idea to "practice" your big payment for a few months before you jump into buying. You can do this by paying the difference between your rent and your mortgage into a savings account. This lets you experience first-hand what it's like to live on the money left over after making such a big mortgage payment. It will also help you save more.
If you try the practice run, are comfortable with the payments and are confident your household’s annual income of $200,000 isn’t at risk, you can probably find a lender willing to allow you to borrow up to 40% of your take-home pay. For some people, buying the dream home is worth making other sacrifices.
If that’s the choice you make, you should shop around carefully and make sure the rates and terms are good on your loan. And, you should be aware that stretching yourself with a mortgage increases the chance of experiencing financial struggle, defaulting on payments and being forced to move house.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Realtor.com (1); Wells Fargo (2); Consumer Financial Protection Bureau (3)
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
