The answer to “how much house can I afford?” is not just about what a lender will approve. It is about what you can comfortably pay without straining your finances. These two numbers are often very different. This guide shows you how to calculate both.
The 28/36 Rule: The Standard Guideline
Most financial advisors use the 28/36 rule as a starting point:
- 28% rule: Your monthly housing costs (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income.
- 36% rule: Your total monthly debt payments (housing + car loans + student loans + credit cards) should not exceed 36% of gross monthly income.
Income to Home Price Table (28% DTI, 6.5% Rate, 30-Year Fixed)
| Annual Income | Monthly Gross | Max Housing Payment (28%) | Estimated Max Home Price |
|---|---|---|---|
| $50,000 | $4,167 | $1,167 | $165,000-$185,000 |
| $75,000 | $6,250 | $1,750 | $250,000-$280,000 |
| $100,000 | $8,333 | $2,333 | $330,000-$370,000 |
| $125,000 | $10,417 | $2,917 | $415,000-$465,000 |
| $150,000 | $12,500 | $3,500 | $500,000-$560,000 |
| $200,000 | $16,667 | $4,667 | $665,000-$745,000 |
Assumes 20% down, 6.5% rate, 30-year fixed, includes estimated taxes and insurance.
What Lenders Actually Look At
Lenders calculate your Debt-to-Income ratio (DTI) – the percentage of your gross monthly income that goes to debt payments.
- Front-end DTI: Housing costs only (PITI). Most conventional loans allow up to 28%-31%.
- Back-end DTI: All monthly debts including housing. Conventional loans typically allow up to 43%-45%. FHA can go up to 57% with compensating factors.
The Down Payment Effect
| Home Price | Down Payment | Loan Amount | Monthly P&I (6.5%) |
|---|---|---|---|
| $350,000 | 3% ($10,500) | $339,500 | $2,147 |
| $350,000 | 10% ($35,000) | $315,000 | $1,991 |
| $350,000 | 20% ($70,000) | $280,000 | $1,770 |
For more on down payments, see our guide on how much down payment you need. And once you are ready to save, see how to save for a house down payment.
Hidden Costs Buyers Forget
- Property taxes: 0.5%-2.5% of home value annually
- Homeowners insurance: $1,200-$3,000+ per year
- HOA fees: $0-$500+/month for condos
- Maintenance and repairs: Budget 1%-2% of home value annually
- Utilities: Typically higher in a home than an apartment
The Real Affordability Test
The 28% rule is a guideline, not a ceiling. Many financial advisors suggest keeping housing at 25% or below to leave room for saving, investing, and handling emergencies. Before buying, ask: if you bought this house and your income dropped 20%, could you still make the payment?
Quick Affordability Calculation
- Take your monthly gross income (before taxes)
- Multiply by 0.28 to get your maximum housing payment
- Subtract estimated taxes ($300-$500/month) and insurance ($150-$200/month)
- Use the remaining amount as your max principal and interest payment
At $100,000 annual income: $8,333 x 0.28 = $2,333 max housing. Minus $450 taxes and $175 insurance = $1,708 in P&I. At 6.5% for 30 years, $1,708 supports about a $270,000 loan – meaning a $337,500 home with 20% down.
What To Do Next
Get pre-approved to see what lenders will actually offer. Then compare that number to your own affordability calculation. Borrow the lower of the two.