Too many people spend more than they can afford on a home, and it comes back to bite them in the long run because they can’t afford to make the payments and end up underwater. Part of the reason for this is that we often answer the question, “how much house can I afford?” with how much a bank is willing to lend us.

A better way to answer that question is to base it off your current income. Depending on where you look, you will find some consensus around 2-3x your annual income. That’s how much you can afford to spend on a home.

So if you and your spouse earn $80,000/year, you can afford a home in the range of $160,000-$240,000. And while this same couple may qualify for a mortgage up to $300,000 or $400,000, taking on that much debt is often too much risk.

To read more about the math that goes into those numbers above, click here.

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