May 28, 2026
"How much house can I afford?"
It's the question I hear more than any other as a financial planner, and it came up again just last week with a couple I'll call Sarah and James Smith. Both high-earning professionals earning a combined $600,000 (James is a Big Law attorney and Sarah works as a nurse), one kid in daycare and another entering kinder, and a starter home they've outgrown. On paper, they look like they can afford anything. In reality, like so many high earners, they weren't sure if they could afford anything.
Before reaching out to me, they did what most people would do in this situation: ask Google. They got back a generic answer: don’t spend more than 28% of your income on housing. At $600,000 of income, that translates into roughly a 2.5M house.
Can they really afford a $2.5M house?
Let’s see.
Breaking Down The Numbers For The Smiths
The benefit of working with a Certified Financial Planner® is that you don’t get a rule of thumb. You get a concrete number. The first thing I did when Sarah and James came to me was dive into their cash flow situation, because income and cash flow are two very different things.
Step 1: Start with the right income figure. A significant portion of their combined income ($120,000) comes from James’ year-end performance bonus. Bonuses are never guaranteed, so we can't build a mortgage around one. That brings their true base salary to $480,000, or about $40,000 per month before taxes and deductions.
Step 2: Back out taxes. Sarah and James live in Dallas, TX, which means no state income tax, a meaningful advantage over peers in New York or California. After federal and payroll taxes, they take home approximately $29,000 per month.
Step 3: Back out monthly expenses.
- Employee benefits (health, dental, dependent care FSA): $1,500
- Child expenses (daycare, activities): $3,500
- Student loan payments: $2,800
- Food, utilities, car payments, and bills: $6,000
- Discretionary spending (dining, travel, shopping): $4,000
- Total monthly expenses: $17,800
Note: I've excluded their current mortgage payment since that goes away once they move into the new house.
After taxes and expenses, Sarah and James have roughly $11,200 left per month. Is that their housing budget? Not so fast.
What About Savings?
Unless the Smiths want to work until they're 75, savings have to be part of this equation before housing ever enters the picture.
In our scenario, they currently contribute $30,000 annually to their 401(k)s and max out their family HSA at $8,750, a combined $38,750 per year, or about $3,230 per month.
That brings their available housing budget down to approximately $8,000 per month.
Now, you might have noticed that $2,800 per month is going toward James's law school loans, which are on track to be paid off in three years. It's tempting to think they could stretch their housing budget now and reallocate that payment later. Here's why I'd advise against it.
Right now, the Smiths are saving about 8% of their base income through their 401(k) and HSA ($38,750 ÷ $480,000). If you fold in the student loan payments as forced savings, which is a reasonable way to think about debt paydown ( it increases your net worth just like savings does), their effective savings rate climbs to about 15% ($72,350 ÷ $480,000). That's closer to my 20% target, but not there yet. When those loans are paid off in three years, the smart move is to redirect that $2,800 straight into savings, not into a bigger mortgage payment.
The Number And The House They Can Actually Afford
With roughly $8,000 per month to work with for housing, here's what the math looks like:
- Equity rolled over from current home: $200,000 (down payment)
- Mortgage interest rate: 6.3%
- Property tax rate: 1.3% annually
- Homeowners' insurance: $6,000 annually ($500/month)
After running those numbers through our housing calculator, the Smiths can comfortably afford a home in the $1.2M range, less than half the $2.5M figure the rule of thumb suggested.
What About That Bonus?
When James’ $120,000 bonus hits at year end, it becomes a conversation about two things: increasing their savings rate to close the gap to 20%, and choosing where to go on vacation. What it is not is a reason to buy more house. That’s the difference between a family that feels financially free and one that's perpetually house-poor.
Bottom Line
The rule of thumb told the Smiths they could afford a $2.5M house. The math told a different story. High income doesn't automatically mean you can afford anything, especially when you factor in taxes, student loans, childcare, and the savings rate needed to build long-term wealth. The right question was never "what's 28% of our income?" It was "after we've taken care of everything that matters, what's left?" For Sarah and James, that number was around $8,000 a month, which bought them a $1.2M home they can genuinely afford.
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