Knowing how much house you can afford is the most important step in buying a home. Buy too much and you risk financial stress for decades. Buy too little and you may outgrow the home quickly. The goal is to find the sweet spot between what you qualify for and what is sustainable for your lifestyle.
In 2026, with mortgage rates running between 6.5% and 7.5% depending on credit and loan type, affordability math has shifted from the low-rate era. Here is how to calculate what you can actually afford.
The 28/36 Rule
The most widely used affordability guideline is the 28/36 rule:
- 28% rule: Your monthly housing costs (mortgage payment, property taxes, insurance) should not exceed 28% of your gross monthly income.
- 36% rule: Your total monthly debt payments (housing plus car loans, student loans, credit cards) should not exceed 36% of gross monthly income.
Some lenders will approve you at higher ratios, but staying within 28/36 gives you buffer for unexpected expenses.
Example: Applying the 28% Rule
If your household earns $90,000 per year ($7,500/month), 28% is $2,100. That is your target maximum monthly housing payment including principal, interest, taxes, and insurance (PITI).
At a 6.75% interest rate, a $2,100 PITI supports a purchase price of roughly $285,000–$315,000, depending on your property tax rate and insurance costs.
What Lenders Actually Approve
Lenders use a slightly different measure: the debt-to-income ratio (DTI). Most conventional lenders cap total DTI at 43%–45%. FHA and VA loans sometimes allow higher DTIs with compensating factors.
| Annual Income | Max Monthly Debt Payment (43% DTI) | Estimated Max Loan (6.75% rate) | Estimated Max Home Price (10% down) |
|---|---|---|---|
| $50,000 | $1,792 | ~$215,000 | ~$240,000 |
| $75,000 | $2,688 | ~$330,000 | ~$365,000 |
| $100,000 | $3,583 | ~$445,000 | ~$490,000 |
| $150,000 | $5,375 | ~$680,000 | ~$755,000 |
These are gross estimates. Your actual approval depends on your credit score, existing debts, down payment, and lender policies.
The Down Payment Factor
Your down payment affects what you can afford in two ways. First, a larger down payment means a smaller loan, which means lower monthly payments. Second, putting down 20% or more eliminates private mortgage insurance (PMI), which typically costs 0.5%–1.5% of the loan balance annually.
On a $350,000 home with a $280,000 loan, PMI at 1% adds about $233 per month to your payment. Over 10 years until you reach 20% equity, that is nearly $28,000 in PMI premiums.
Hidden Costs Beyond the Mortgage Payment
Many first-time buyers underestimate the full cost of homeownership. Your actual monthly housing cost includes:
- Principal and Interest: Your base mortgage payment
- Property Taxes: Typically 1%–2% of home value annually, split into monthly escrow
- Homeowner’s Insurance: Usually $1,200–$2,500 per year
- PMI (if down payment is under 20%): 0.5%–1.5% annually
- HOA Fees (if applicable): $100–$1,000+ per month depending on community
- Maintenance and Repairs: Budget 1%–2% of home value annually
On a $350,000 home, the total monthly cost including all of the above can easily reach $3,200–$3,800, even if the mortgage payment alone is $2,400.
Affordability Calculator: Run the Numbers Yourself
Use this step-by-step approach to estimate how much you can afford:
- Calculate your gross monthly income (before taxes). Include all sources: salary, self-employment, rental income, etc.
- Multiply by 28% to get your target maximum housing payment.
- Subtract estimated taxes, insurance, PMI, and HOA to find how much remains for principal and interest.
- Use a mortgage calculator to find what loan amount your P&I budget supports at current rates.
- Add your down payment to the loan amount to get your estimated maximum purchase price.
For example, with $7,000/month gross income:
- 28% rule: $1,960 max housing payment
- Subtract estimated taxes + insurance + PMI: $1,960 – $700 = $1,260 for P&I
- At 6.75% for 30 years, $1,260/month supports a loan of about $192,000
- With $30,000 down, purchase price target: ~$222,000
The 2.5x Rule
A simpler rule of thumb: buy a home priced at no more than 2.5 times your gross annual income. At $80,000 income, this means a max price of $200,000. At $120,000, about $300,000.
This rule is conservative and may underestimate buying power in low-rate environments, but in 2026 with rates above 6%, it is a reasonable sanity check.
How Your Credit Score Affects Affordability
Your credit score has a direct impact on your interest rate, which directly affects affordability. Here is a simplified example on a $300,000 loan:
| Credit Score | Approximate Rate | Monthly Payment (P&I) | Total Interest Over 30 Years |
|---|---|---|---|
| 760+ | 6.50% | $1,896 | $382,560 |
| 720–759 | 6.75% | $1,946 | $400,560 |
| 680–719 | 7.25% | $2,046 | $436,560 |
| 640–679 | 7.75% | $2,149 | $473,640 |
The difference between a 760 score and a 640 score is $253 per month and over $90,000 in total interest. Improving your credit before buying can significantly increase what you can comfortably afford.
Renting vs. Buying: When Does Buying Make Sense?
In markets where home prices are high relative to rents, buying does not always make financial sense in the short term. A rough rule: if a home costs more than 20x annual rent for a comparable property, renting may be cheaper in the near term.
Over the long term, homeownership builds equity and provides stability. But it requires staying in the area for at least five years to overcome transaction costs at purchase and sale.
Final Thoughts
In 2026, buying smart means looking beyond the pre-approval letter. Just because a lender approves you for $450,000 does not mean you should spend that much. Use the 28% rule, account for all housing costs, and leave room in your budget for savings, retirement contributions, and the unexpected. The right home is one you can afford comfortably, not just technically.