How Much Should You Spend On A House?

A house is the largest purchase you'll ever make. As such, it is critical you don't overspend unless you have a financial death wish. How much should you spend on a house?

paying for your home in cash. Under this scenario, there's really no set amount you should spend. You can spend as much as your savings allow, provided you're not “borrowing” from funds you had set aside for other purposes. In reality, this approach is impractical for most people. But, if you happen to have a few hundred thousand dollars lying around, you'll skip tens of thousands of dollars in interest payments by paying in full. Related:

In the likely event you need a mortgage, Ramsey recommends paying at least 20 percent down on a 15-year (or less), fixed-rate loan. And, he recommends spending no more than 25 percent of your take-home pay in the process. This method probably won't get you that mansion on the coast, but it'll keep your checking account above $0. Related:

, the 28/36 rule dictates you shouldn't spend more than 28 percent of your monthly budget on housing. Under this rule, you should cap your total debt-to-income at 36 percent. For example, if your total monthly budget is $4,000 and you currently pay $250/month in credit card bills and $300 for student loans, your debt-to-income ratio is 13.75 percent ($550/$4,000). You'd want to cap your mortgage payment at 22.25 percent (36-13.75) of your budget instead of the 28 percent maximum you'd have gone with otherwise. This means the maximum monthly mortgage payment you should accept is $890 (22.25 percent of $4,000) in this example.

While experts like Ramsey might tell you not to spend over 25 percent of your monthly take-home pay, that's a broad way of looking at this situation. Such advice is helpful, but Ramsey, nor any other expert you've never met knows your personal financial situation. So, if you're currently paying $1,000 in rent, you can obviously afford that $850 mortgage – even if it would eat up 35 percent of your pay. That doesn't mean you shouldn't find the best value around. But, whether you rent or buy, you're going to pay a monthly payment and will at least get something back in return on a purchase. In that sense, even if you have to go a little over the experts' recommended percentages, it may be worthwhile to do so if your only other option is to continue renting.