Disclosure: This page contains affiliate links. We may earn a commission if you apply for or purchase a product through our links. This does not affect our reviews or ratings, which are based on independent research.
Buying a home is the biggest financial decision most people ever make. Before you fall in love with a house, you need to know what you can actually afford. This guide walks you through how to calculate your home-buying budget and what lenders look at when you apply for a mortgage.
The 28/36 Rule: The Basic Starting Point
Financial experts use the 28/36 rule as a starting point for home affordability. Here is what it means:
- 28% rule: Your monthly mortgage payment (including taxes and insurance) should be no more than 28% of your gross monthly income.
- 36% rule: Your total monthly debt payments (mortgage plus car loans, student loans, credit cards, etc.) should be no more than 36% of your gross monthly income.
Here is how to calculate your number:
- Take your annual salary and divide by 12 to get your gross monthly income.
- Multiply that by 0.28 to get your max mortgage payment.
- Multiply by 0.36 to get your max total debt payment.
Example Calculation
Annual income: $80,000
- Gross monthly income: $80,000 ÷ 12 = $6,667
- Max mortgage payment (28%): $6,667 × 0.28 = $1,867
- Max total debt (36%): $6,667 × 0.36 = $2,400
If you already pay $400 per month on a car loan and $200 in student loans, your remaining budget for a mortgage is about $1,800 — right at the 28% limit.
What Home Price Does That Support?
Your mortgage payment depends on the home price, your down payment, and the interest rate. Here is a rough guide based on a 7% mortgage rate and 20% down payment:
| Gross Annual Income | Max Monthly Payment (28%) | Estimated Home Price |
|---|---|---|
| $50,000 | $1,167 | ~$170,000 |
| $75,000 | $1,750 | ~$255,000 |
| $100,000 | $2,333 | ~$340,000 |
| $150,000 | $3,500 | ~$510,000 |
| $200,000 | $4,667 | ~$680,000 |
Rates as of May 2026. Rates change often. Check with each lender for current rates before you apply.
These are estimates. Your actual number depends on your debt, down payment, credit score, and current rates.
What Lenders Actually Look At
Banks and mortgage companies do not use the 28/36 rule exactly. They use their own calculations. Here is what lenders examine when you apply:
Debt-to-Income Ratio (DTI)
Your DTI compares your total monthly debts to your gross monthly income. Most lenders want your DTI below 43%. Some will go up to 50% with strong credit or a large down payment.
Credit Score
Your credit score affects both your approval odds and your interest rate. A higher score gets you a better rate, which lowers your monthly payment. For tips on getting the best mortgage rates, see our guide to first-time homebuyer loan programs.
Down Payment
The more you put down, the smaller your loan and the lower your payment. Putting down at least 20% also removes the need for private mortgage insurance (PMI), which can add $100 to $300 per month to your payment.
Employment History
Lenders want to see stable income. They usually want at least 2 years of employment history in the same field. Self-employed borrowers need to show 2 years of tax returns.
Hidden Costs of Homeownership
The mortgage payment is not your only cost. Many first-time buyers underestimate what they pay each month. Add these into your budget:
- Property taxes: Typically 1% to 2% of the home’s value per year
- Homeowners insurance: Typically $1,000 to $2,000 per year
- PMI (if down payment is under 20%): 0.5% to 1.5% of the loan per year
- HOA fees (if applicable): $100 to $500+ per month
- Maintenance: Budget 1% to 2% of the home’s value per year for repairs
Total Monthly Cost Example
Home price: $300,000, 10% down ($30,000), 7% rate, 30-year term
- Principal + interest: $1,795
- Property taxes (1.2%/year): $300
- Homeowners insurance: $125
- PMI (0.8%/year): $200
- Total monthly payment: ~$2,420
Getting Pre-Approved
Once you know your budget, get pre-approved before you shop for homes. Pre-approval is a lender’s written commitment to lend you a specific amount. It shows sellers you are serious and helps you move fast when you find the right home.
For a step-by-step guide, see our article on how to get pre-approved for a mortgage.
FHA vs. Conventional Loans: Which Fits Your Budget?
FHA loans have lower down payment requirements (3.5%) and accept lower credit scores (500 with 10% down, 580 with 3.5% down). But they require mortgage insurance for the life of the loan in most cases.
Conventional loans require better credit (620 minimum) and a higher down payment, but PMI goes away once you reach 20% equity.
See our full breakdown of FHA loan requirements to compare.
Frequently Asked Questions
- What is the 28/36 rule for buying a home?
- The 28/36 rule says your mortgage payment should be no more than 28% of your gross monthly income. Your total debt payments (mortgage plus all other debts) should be no more than 36% of your gross monthly income.
- How much house can I afford on a $75,000 salary?
- On a $75,000 salary, your gross monthly income is $6,250. The 28% rule gives you a max mortgage payment of about $1,750 per month. That typically means you can afford a home priced around $270,000 to $320,000, depending on your down payment and interest rate.
- What credit score do I need to buy a house?
- You typically need at least a 620 credit score for a conventional loan. FHA loans allow scores as low as 500 with a larger down payment. The higher your score, the better your mortgage rate.
- Does my debt affect how much house I can afford?
- Yes. Lenders look at your debt-to-income ratio (DTI). The more debt you carry, the lower your home-buying budget. Paying off debts before buying can increase your purchasing power.
- What is a good down payment for a first home?
- A 20% down payment is traditional and avoids private mortgage insurance (PMI). But many first-time buyers put down 3% to 10%. FHA loans require just 3.5% down.
Bottom Line
Use the 28/36 rule to estimate your home budget, but remember that lenders look at your full financial picture. Keep your DTI below 43%, save for a solid down payment, and get pre-approved before you start house hunting. Knowing your real number before you shop saves you from falling in love with a home you cannot afford.