For first-time homebuyers, settling on the “right” time to buy feels like a losing game—especially in this current market. High inflation, steep interest rates, and a short supply of new homes have made the road from renter to homeowner more challenging. 

But the good news is that no matter what’s happening with the economy, there are moves you can make to make sure that you can comfortably afford your dream home when the right one comes along. 

That starts with having a clear idea of your financial situation and how much buying power your annual income can afford you. 

Factors that could be hurting your buying power


During the pandemic, mortgage rates fell to historic lows while home prices rose to unprecedented levels. However, that trend reversed as the Fed began a series of rate hikes in March 2022. Mortgage rates are now at the highest level in about 20 years. And though home prices fell quite a bit, they’re back on the rise in 2023.

Housing prices have gone up five months in a row, according to the latest data from S&P CoreLogic’s Case-Shiller U.S. National Home Price NSA Index, which was released August 29. The report shows that home prices rose by 0.7% from May to June on a seasonally adjusted basis.

The most recent data from the Fed also finds that the median sales price of houses sold in the U.S. stood at $416,100 in the second quarter of

At the same time, though inflation has slowed, the costs of everyday expenses continue to tick upward—an added challenge for some prospective homebuyers saving up for a down payment and the general costs of homeownership. The Consumer Price Index (CPI) rose 0.2% in July, the same increase as in June.

How much do you need to make to afford a $600,000 home?

Experts have several guidelines for determining how much income you need to earn to comfortably afford a home within a specific budget

“Your home value shouldn’t be more than two or two-and-a-half times your salary,” says Dan R. Hill, certified financial planner, AIF®, and president of Hill Wealth Strategies in Richmond, VA. So if you earn $100,000 per year, aim for a purchase price under $250,000.” 

Following this logic, you would need to earn at least $300,000 per year to buy a $600,000 home, which is twice your salary. This is a general guideline, of course, and the exact amount you can afford to comfortably pay each month will depend on your financial obligations and goals.

Understanding the 28/36 rule

“Other rules say you should aim to spend less than 28% of your pre-tax monthly income on a mortgage,” says Hill. Known as the “28/36 rule,” this can be a solid framework for setting a budget. And it’s the guideline many mortgage lenders use when approving loan applicants.

This rule states that your mortgage payment (including principal, interest, insurance, and taxes) should not exceed 28% of your total monthly gross income (your front-end ratio). Total debt payments (including mortgage payments) should be no more than 36% of your gross monthly income (your back-end ratio). 

Say you’re interested in purchasing a new home. 

  • Your purchase price: $600,000
  • Down payment: $36,000 (6% of the total purchase price, about the average for first-time buyers)
  • Loan term: 30-year fixed
  • Loan interest rate: 7.08% (the average rate as of September 1, 2023) 

Your total monthly mortgage payment would be around $3,783 per month. 

You’ll need to know your front and back-end ratios to calculate if you can comfortably afford that payment. 

Reminder: Your front-end ratio is the percentage of gross monthly income that goes toward your mortgage payment, while your back-end ratio is the percentage that goes toward paying all debts. 

This means your gross income would need to be at least $13,511 per month ($162,132 per year) to keep your monthly mortgage payment below that 28% threshold. The rest of your monthly debt payments shouldn’t total more than about $1,080.

Before buying a home, consider the following 

You can use the 28/36 rule to give you a general idea of how much you could expect to pay for a home within a specific price range. But knowing how much realistically fits into your budget will require further considerations, including: 

  • Your other debt obligations. The other half of the 28/36 rule requires you to consider your other debt obligations, like your credit card bill, student loan, car payment, etc. What does your repayment timeline look like for those debt payments? Will those payments increase over time? These are all questions you’ll want to ask yourself before deciding that you can afford a specific monthly payment. 
  • How your income will change over time. It’s impossible to predict how your income will change over time, so it’s important to take the 28% rule with a grain of salt. “Like any good guideline, the 28% rule works well in a vacuum,” says Ted Braun, a certified financial planner, senior vice president, and financial advisor at Wealth Enhancement Group. “However, it fails to consider other important factors such as future income increases and temporary spending needs—think daycare, college savings, or even taking care of a loved one.” Your best bet is to budget for a home well below the 28% threshold to give yourself extra breathing room if your income changes or unexpected expenses crop up.
  • Additional homeownership costs. Don’t be fooled by the purchase price when shopping for a new home. Other costs such as immediate home improvements, insurance, property taxes, and maintenance can all hike up the annual costs of owning your home. “The costs do not just include things within the home; property taxes and homeowners’ insurance are a huge component as well,” says Braun. “You may work very hard to find the perfect home in the perfect neighborhood just to find out the property taxes will cost you another $1,000 per month.” 

The takeaway

Before you set a budget for your purchase, take stock of your monthly budget and financial obligations to determine whether your estimated mortgage payment could fit into that budget. You might find that a higher payment will slow your progress on other financial goals, or you’ll need to continue saving for a larger down payment before you can comfortably afford your mortgage payment. 

“Planning for the purchase of a home is just as important as planning for any other major financial decision, and failure to adequately budget can lead to devastating consequences,” says Braun. “Spend the time, build a plan, and test scenarios until you have 100% confidence in what you are about to embark on.”

BYIVANA PINO AND CASEY BONDUpdated September 1, 2023 at 6:17 PM EDT