How Much House Can I Afford? Rules, Formulas & Calculator
"How much house can I afford?" is one of the most important financial questions you will ever ask. Buy too much house and you become "house poor" — with a beautiful home but no money left for savings, vacations, or emergencies. Buy within your means and homeownership becomes a wealth-building engine that works for you for decades.
In this guide, we will walk through the rules lenders actually use to determine your maximum home price, break down the hidden costs most first-time buyers overlook, and give you a salary-to-home-price table so you can estimate your range in seconds. For a personalized result, use our free mortgage calculator to see exactly what your monthly payment would be.
The 28/36 Rule: The Gold Standard of Affordability
Most lenders use the 28/36 rule to determine how much mortgage you qualify for. It sets two ceilings:
- 28% rule (front-end ratio): Your total monthly housing costs — including mortgage principal and interest, property taxes, homeowners insurance, and HOA fees — should not exceed 28% of your gross monthly income.
- 36% rule (back-end ratio): Your total monthly debt payments — housing costs plus car loans, student loans, credit card minimums, and any other debts — should not exceed 36% of your gross monthly income.
Example: Applying the 28/36 Rule
You earn $90,000 per year ($7,500 gross monthly income) and have $400/month in existing debts (car payment + student loan minimum).
- 28% of $7,500 = $2,100 — your maximum monthly housing cost
- 36% of $7,500 = $2,700 — your maximum total debt
- Since $2,700 − $400 (existing debts) = $2,300, and $2,100 < $2,300, the 28% rule is the binding constraint
- Maximum monthly housing budget: $2,100
After subtracting estimated property taxes ($300/month) and insurance ($150/month), you have about $1,650 available for mortgage principal and interest. At 6.5% on a 30-year loan, that supports a loan of roughly $261,000 — or a $326,000 home with 20% down.
Check your own numbers with our debt-to-income calculator.
Debt-to-Income Ratio Explained
Your debt-to-income (DTI) ratio is the single most important number lenders evaluate after your credit score. It answers: "What percentage of your gross income goes toward debt payments?"
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Here is how lenders interpret DTI:
| DTI Range | Lender View | Loan Options |
|---|---|---|
| Under 28% | Excellent | Best rates, all loan types available |
| 28% – 36% | Good | Most conventional loans approved |
| 36% – 43% | Acceptable | May need compensating factors (high savings, excellent credit) |
| 43% – 50% | High risk | FHA may approve; conventional lenders rarely will |
| Over 50% | Very high risk | Most lenders will decline |
Income-Based Home Price Estimates
The following table gives ballpark home price ranges based on annual salary, assuming a 20% down payment, 6.5% interest rate, 30-year term, and no excessive existing debt. These use the 28% front-end rule:
| Annual Salary | Max Monthly Housing | Est. Max P&I | Approx. Home Price |
|---|---|---|---|
| $50,000 | $1,167 | $750 | $148,000 |
| $75,000 | $1,750 | $1,300 | $257,000 |
| $100,000 | $2,333 | $1,833 | $363,000 |
| $125,000 | $2,917 | $2,367 | $469,000 |
| $150,000 | $3,500 | $2,950 | $584,000 |
| $200,000 | $4,667 | $4,067 | $806,000 |
Important: These are estimates. Your actual affordability depends on credit score, existing debts, local property taxes, and the interest rate you qualify for. Use our mortgage calculator to model your specific scenario.
The Impact of Your Down Payment
Your down payment affects three things simultaneously: your loan amount, whether you pay PMI, and your interest rate.
- 20% down ($60,000 on a $300,000 home): No PMI required. Best rates. Loan amount: $240,000. Monthly P&I at 6.5%: $1,517.
- 10% down ($30,000): PMI required (~$135/month). Loan: $270,000. Monthly P&I: $1,706 + PMI = $1,841.
- 5% down ($15,000): Higher PMI (~$190/month). Loan: $285,000. Monthly P&I: $1,801 + PMI = $1,991.
- 3.5% down FHA ($10,500): FHA mortgage insurance (~$165/month, for life of loan). Loan: $289,500. Monthly P&I: $1,830 + MIP = $1,995.
The difference between 5% and 20% down on a $300,000 home is $474 per month. Over 30 years, the lower down payment costs an additional $60,000+ in PMI and extra interest. Explore the tradeoffs with our down payment calculator.
Hidden Costs Most Buyers Forget
Your mortgage payment is just the beginning. Budget for these ongoing and one-time costs:
- Property taxes: $2,000–$12,000+ per year depending on state and home value. New Jersey averages 2.2% while Hawaii averages 0.3%.
- Homeowners insurance: $1,200–$3,500 per year. Higher in hurricane, tornado, and wildfire zones.
- PMI: $100–$300 per month if your down payment is under 20%. Drops off at 20% equity for conventional loans (but not FHA).
- Maintenance: Budget 1–2% of home value per year. A $350,000 home needs $3,500–$7,000 annually for upkeep (roof, HVAC, plumbing, paint, landscaping).
- Closing costs: 2–5% of the purchase price, paid at closing. On a $300,000 home, expect $6,000–$15,000 for appraisal, title insurance, attorney fees, and lender origination fees.
- HOA fees: $50–$500+ per month in planned communities, condos, or townhome developments.
To see the full financial picture of buying versus renting, use our rent vs. buy calculator.
Pre-Qualification vs. Pre-Approval
Before house shopping, you will encounter two different lender assessments:
- Pre-qualification is an informal estimate based on self-reported income, debts, and assets. There is no credit check, no income verification, and no commitment from the lender. It takes about 10 minutes and gives you a rough idea of your budget.
- Pre-approval is a formal process. The lender pulls your credit report, verifies your income and employment, reviews your bank statements, and issues a conditional commitment for a specific loan amount. It typically takes 1–3 days and is valid for 60–90 days.
In competitive markets, sellers expect a pre-approval letter with every offer. It signals that a lender has already vetted your finances, making your offer significantly stronger than one backed only by pre-qualification.
Figure Out Your Number
Ready to see exactly how much house fits your budget? Start with our mortgage calculator to model monthly payments, then check your debt-to-income ratio to see where you stand with lenders. Knowing your numbers before you start shopping puts you in the strongest possible negotiating position. Use our paycheck calculator to convert your salary into take-home pay so you can budget realistically.