How much house can I afford? Start with the monthly payment

A couple came to us who could have gone higher on their loan than the amount they asked for. They wanted to stay at a number they'd already picked, because they're working toward a house that's paid off, and a bigger payment would push that further away. So that was the number we worked from.

There are two numbers in every home purchase. One is how much a lender says you qualify for. The other is the payment you can live with, month after month, for a long time. They aren't the same number. The payment is the one you get to pick.

What does the lender's number measure?

A big part of it is one ratio. Your debt-to-income ratio, or DTI, is all of your monthly debt payments divided by your gross monthly income (CFPB). Gross income is what you earn before taxes and other deductions come out. The new house payment goes into that math along with your car loan, your student loans and your credit cards. Each loan program has its own limit for it, and it's one of the main ways a lender decides whether a payment is one you can handle.

The ratio answers a narrower question than the one you're asking. It runs on your income before taxes, and you pay the mortgage with what's left after. It doesn't know about daycare, or what you put into savings every month, or the car that's going to need replacing in a couple of years. Those are the things that decide whether a payment feels fine or feels tight.

What goes into the monthly payment?

More than the loan. Most payments also carry your property taxes and your homeowners insurance. A little goes into an escrow account each month, and the bills get paid from it, so you don't get hit with one big bill once or twice a year (CFPB). Taxes and insurance can change from year to year, and when they do, your payment changes with them.

This is where comparing rates can mislead you. The rate matters, and it's one piece of the payment. Two houses at the same price can come with different tax bills, which means they come with different payments.

So how do you find the payment you can live with?

Start from your month instead of from the house. Look at what you pay in rent now and what's left at the end of the month. Then think about what you want to keep doing once you own: saving, paying something else down, the trip you take every summer. The payment you can live with is the one that leaves room for those.

Owning also comes with costs renting didn't have. When the water heater goes, there's no landlord to call, so leave some room for that too.

You don't need a spreadsheet to get started. Pick the monthly number you'd be comfortable with and tell us what it is. We'll work backward from there.

What if that number doesn't buy the house you pictured?

In Portland, it often won't, at least at first. The block you'd pick first may be out of reach, and the way buyers here make the payment work is by trading something: a bedroom, the size of the yard, a house for a townhome or a condo, one neighborhood for the one next to it.

Those are real trade-offs, and they're yours to make. Our part is showing you what each one does to the payment, so you're choosing between real numbers instead of guesses.

With another client, we sent a quote that was well above their monthly target, on purpose, as a starting point so they could see what the breakdown looked like at the higher range. Looking at a bigger number doesn't commit you to it. Sometimes it's the fastest way to see why your own number was right.

What can we tell you, and what can't we?

We can't tell you today what you'll qualify for, and we won't tell you what you should spend. That part belongs to you.

What we can do is look at your real situation and show you the best two options side by side, each with its monthly payment and the cash you'd need at closing. We'll tell you which one we'd pick and why, and then the call is yours.

If you aren't ready to buy yet, that's fine. The more we can get lined up ahead of time, the better your options will be when the time comes. Talk to David or Bri. We can set up a time to visit by phone, or you can get started with an online application, whichever you prefer.

Movement Mortgage, LLC, NMLS #39179. David Chandler NMLS #265974. Brianna Lindley NMLS #1367416. Equal Housing Lender. Not a commitment to lend.