House Buying Budget: How to Figure Out What You Can Really Afford

Thinking about buying a home? The first thing you need is a clear budget. Too many buyers jump in without knowing the real numbers and end up stuck with a mortgage they can't handle. Let’s break down the exact steps you should take to set a realistic house buying budget that keeps you comfortable.

Step 1: Work Out Your True Buying Power

Start with your gross annual income. Lenders usually look at a Debt‑to‑Income (DTI) ratio of 36% or less for a comfortable mortgage. Take your monthly salary, multiply by 12, then calculate 36% of that amount. That’s the maximum monthly payment you should aim for, including principal, interest, taxes, and insurance (PITI).

Example: If you earn £45,000 a year, 36% of that is £16,200, or £1,350 a month. That figure guides how much house price you can realistically consider.

Step 2: Add Up Your Down Payment and Savings

Most lenders expect at least a 10‑15% deposit. The bigger your down payment, the lower your monthly mortgage and the better your loan terms. Use a simple calculator: House price × deposit % = cash needed up front.

If you’re eyeing a £250,000 property and can put down 15%, you’ll need £37,500. Add a buffer of a few thousand for moving costs, legal fees, and any immediate repairs.

Step 3: Don’t Forget Hidden Expenses

Mortgage payments aren’t the whole story. Budget for:

Council tax and utilities (usually 1‑2% of the property value per year)

Home insurance

Maintenance and repairs – aim for 1% of the purchase price each year

Furnishing and optional upgrades

These costs can add up quickly, so set aside a separate monthly amount now rather than retroactively.

Step 4: Use a Home Budget Calculator

Plug your numbers into an online home budget calculator. It will show you the mortgage amount you qualify for, the monthly payment, and how much you’ll need for the deposit. Most UK bank sites offer free tools – just enter your income, debts, deposit size, and interest rate assumptions.

Running the calculator helps you see if you need to adjust your expectations: maybe look at a smaller property, increase your deposit, or lower your debt load.

Step 6: Get Pre‑Approved

Once you have a solid budget, talk to a lender for a pre‑approval. It shows sellers you’re serious and gives you a concrete price ceiling. Pre‑approval also highlights any gaps in your financial picture that you can fix before making an offer.

Remember, a budget isn’t set in stone. If your circumstances change – a raise, a new baby, or a sudden expense – revisit the numbers and tweak accordingly.

By following these steps, you’ll walk into viewings with confidence, avoid over‑stretching, and land a home that fits both your lifestyle and your wallet.