One of the first questions every home buyer asks is: how much house can I actually afford? The answer depends on more than just your income. Your debts, down payment, credit score, and local property taxes all factor in.
This guide gives you the formulas lenders use, rules of thumb that actually work, and a clear picture of what your monthly payment will look like at various price points.
The 28/36 Rule
The most common affordability guideline is the 28/36 rule:
- 28%: Your housing costs (mortgage principal, interest, property taxes, homeowners insurance) should not exceed 28% of your gross monthly income
- 36%: Your total debt payments (housing plus car loans, student loans, credit cards) should not exceed 36% of gross monthly income
Example: If you earn $8,000/month gross, the 28% front-end limit means maximum housing costs of $2,240/month. The 36% back-end limit means $2,880/month for all debts combined.
What Lenders Actually Use: DTI Ratios
Real lenders use debt-to-income (DTI) ratios, which are similar but slightly different from the 28/36 rule:
- Conventional loans: Generally up to 43-50% back-end DTI
- FHA loans: Up to 57% in some cases with automated approval
- VA loans: 41% guideline but can go higher
Affordability by Income Level
Here are rough guidelines for home price ranges based on annual income, assuming a 20% down payment and moderate existing debt:
- $50,000/year: Approximately $150,000-$200,000 home
- $75,000/year: Approximately $225,000-$300,000 home
- $100,000/year: Approximately $300,000-$400,000 home
- $150,000/year: Approximately $450,000-$600,000 home
These ranges shift significantly based on debt load and down payment amount. A buyer with $1,500/month in existing debts can afford far less house than someone with $200/month in debts at the same income.
The True Cost of Homeownership
Most buyers focus only on the mortgage payment. The full monthly cost of owning includes:
- Principal and interest (your mortgage payment)
- Property taxes (often 1-2% of home value annually)
- Homeowners insurance ($100-$250/month typical)
- Private mortgage insurance or MIP if down payment is under 20%
- HOA fees if applicable
- Maintenance and repairs (budget 1% of home value per year)
On a $350,000 home with 10% down and a 6.75% rate, the mortgage payment alone is about $2,040. Add property taxes ($350/month), insurance ($150/month), and PMI ($100/month), and you are at $2,640/month — before any maintenance.
Down Payment Impact on Affordability
A larger down payment directly increases the price you can afford at the same monthly payment:
- 3.5% down on $300,000 = $10,500 down, $289,500 loan
- 10% down on $300,000 = $30,000 down, $270,000 loan
- 20% down on $300,000 = $60,000 down, $240,000 loan (no PMI)
Saving for a larger down payment can significantly reduce monthly costs and eliminate PMI — but it also means waiting longer to buy, during which home prices may increase.
Using an Online Mortgage Calculator
Mortgage calculators give you quick estimates but often miss key costs. When using a calculator, make sure it includes:
- Principal and interest
- Property tax estimate for your target area
- Homeowners insurance
- PMI if applicable
- HOA fees
Getting pre-approved from a lender like Rocket Mortgage or LendingTree gives you a more accurate number than any calculator, because it is based on your actual credit score, income documents, and current rates.
Signs You Are Buying Too Much House
- Your housing payment would exceed 30% of take-home (not gross) pay
- You would have no emergency fund left after the down payment and closing costs
- You are depending on a planned raise or bonus to make payments comfortable
- You cannot afford the home without both incomes (if you are a couple), with no cushion if one income stops
Getting a Precise Number
The most accurate answer to “how much can I afford” comes from mortgage pre-approval. A lender reviews your actual income documents, pulls your credit report, and tells you the maximum loan amount you qualify for based on your specific financial picture — not a formula applied to an average borrower.
Once you know your approved loan amount, add your available down payment to determine your maximum purchase price. Then subtract 10-15% from that maximum to find a comfortable target that leaves room in your budget.
Bottom Line
Affordability comes down to income, debts, down payment, credit score, and local costs. The 28/36 rule provides a starting point, but your specific numbers matter more than any general formula. Get pre-approved to see exactly where you stand — and shop within a budget that leaves room for the full cost of homeownership, not just the mortgage payment.