So how much house can you afford? I just read through the study showing all of us how much money we needed to be making to afford a home in 27 cities around the United States. Aside from the obvious things like it costs much more to buy a house in San Francisco than it does in Houston, that home values stayed relatively flat on average around the country, and that interest rates dropped throughout last year, I found the numbers a little disturbing.

Here are a couple of the 27 cities that were listed:

City Median Home Price Monthly Payment (PITI) Salary Needed
Pittsburgh $140,000 $746 $31,963
Houston $217,400 $1,203 $51,560
Miami $315,000 $1,514 $64,879
San Francisco $835,400 $3,551 $152,173


The study used industry standard formulas for determining how much one should pay for a house based on their income. The formula that apparently has been used for decades is around 28% of your income. In other words, someone once said that you can afford to earmark 28% of your gross income to your home mortgage costs. Just show me one person with an income of $152,000 that can afford an $835,400 home in San Francisco…and still have money left over to eat.

Let me walk you through some numbers if you owned a home in Houston. Let’s say you made the $52,000 that the study says you need to make to own a Texas home. What else will you need to pay for in a given year?

Annual Salary $52,000
LESS: Federal Income Tax estimate -9,000
LESS: 20% Saving Goal -$10,000
LESS: Mortgage Payment -$14,000
LESS: Real Estate Tax -$4,000


So in my example this leaves you with $1,250 per month to pay for a lot of things. Can you really do it? Maybe so but why force yourself to be so house poor?

When looking at a house, whether it is your first or fifth, consider these three things:

  1. Do not buy as much of a house as the mortgage company…or the 28% rule…allows you to. Only you can determine the right number. The key is to take a detailed look at the expenses that you will need to cover and don’t put yourself in a bind. Don’t let that shiny new house harm your better judgement.
  2. Make sure you still have liquid cash after the purchase. Don’t make the mistake of putting everything you own into the house leaving yourself with no cash reserve. Things come up in life and they may not be timed perfectly for you. Always keep a minimum of three to 6 months of your expenses in cash.
  3. Always budget your savings need first. Don’t save only if you can afford to. Treat your savings for your future like a bill and pay yourself first. You will thank yourself twenty years from now.

I think we can learn from this study, just maybe not what the authors had originally intended. Don’t hesitate to call your financial advisor before you make your big purchase.

Source:; Updated November 16, 2016.


FINANCIAL ADVISOR WARNING! Are you being ripped off? Call 281-907-5136 to hear the 5 Costly Misconceptions about Financial Planning. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director of United Capital Financial Advisors, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances. The opinions expressed herein are those of Byron Ellis and not necessarily those of United Capital Financial Advisors, LLC.