Now it’s time to bring it all together.
Take your total monthly after-tax income, and subtract the value of any bills that you’ll still have in the new home.
From this total, subtract the estimated mortgage payment we just found, subtract the new bills homeownership would bring, and see what you have left.
If you have a healthy balance at this point, you probably can stick to the realtor formula for the home value you can afford.
If you’re short, you obviously need to shop for a lower cost home.
Now all you need to do is double check the mortgage value of any prospective home and replace it in the formula… and you’ll be sure that you never consider a home that you can’t afford.