How Much Should You Spend When Buying a Home?

The question of how much home a buyer can afford is critical in the buying process, but what is most important is knowing how much money you should spend on a home.

When the loan officer calls and says you're preapproved for a specific amount of money, that doesn't necessarily mean you should look for a home at that high of a price point. Maybe you want flexibility in your income, have additional expenses coming in or want one household member to stay home with the kids instead of working. Looking at your specific priorities can help you determine a better price range of what you'd like to spend each month for a house payment.

The standard rule of thumb when paying for a home is not to let the total monthly cost exceed 28 percent of your income. The total cost includes maintenance, insurance, taxes and monthly payment. So if you're wanting to save or have an easier time of paying for things, try to figure at coming in at a lower percentage. Or if you just received a raise or are comfortable with being stretched a little thinner, figure in going at a little bit higher than 28 percent.

Keep in mind that you, the buyer, needs to decide what is most important here. Most folks don't want to be house rich and cash poor, but there are a few that don't mind. Determine what makes sense to you, both fiscally and emotionally before looking at a particular price range of houses. Buying a home can be emotional, but if you're prepared from the get-go you can make an informed decision aligned with your financial goals.