Guide
How Much House Can I Afford?
The honest answer: probably less than the bank will lend you. Lenders approve you based on what you can technically repay. A good budget is based on what you can repay while still living your life. Here's how to find your real number.
Start with the 28/36 rule
The classic guideline lenders and financial planners use is the 28/36 rule. Your total monthly housing cost — mortgage principal and interest, property taxes, homeowners insurance, PMI, and HOA dues — should stay at or under 28% of your gross monthly income. Your total debt payments, including that housing cost plus car loans, student loans, and credit card minimums, should stay at or under 36%.
Take a household earning $110,000 a year, or about $9,167 a month. The 28% housing ceiling is roughly $2,567 per month. If that household also carries a $450 car payment and $300 in student loans, the 36% total-debt ceiling of $3,300 leaves only $2,550 for housing — so in this case the debt side, not the income side, sets the limit. That's common, and it's why two families with identical salaries can afford very different homes.
Payment first, price second
Most people shop backwards — they start with a home price and hope the payment works out. Flip it. Decide the monthly payment you're comfortable with, then work backward to a price. At recent rates around 6.5%, every $100,000 you borrow on a 30-year loan costs about $632 a month in principal and interest — before taxes and insurance. So a $2,550 housing budget doesn't support a $2,550 mortgage payment; once you subtract, say, $350 for property taxes, $150 for insurance, and any PMI or HOA, you may have closer to $1,900 for principal and interest, which supports roughly $300,000 of borrowing.
What lenders actually check
Underwriters look at your debt-to-income ratio (that 36% figure, though many programs stretch to 43% or beyond), your credit score, your down payment, and your documented income. A score above roughly 740 gets you the best rates; below 680, expect to pay noticeably more. A down payment under 20% on a conventional loan usually means private mortgage insurance, which adds roughly 0.3% to 1.5% of the loan balance per year until you reach 20% equity.
Here's the part people miss: being approved for a larger loan is not a compliment or a recommendation. Lenders model your ability to pay them, not your ability to also save for retirement, replace a car, or absorb a furnace failure. The gap between "approved" and "affordable" is where house-poor households are made.
Don't forget the costs that aren't in the payment
Budget 1% to 2% of the home's value each year for maintenance and repairs — more for older homes. Closing costs typically run 2% to 5% of the purchase price. Utilities on a larger home can easily run a few hundred dollars a month more than the apartment you're leaving. None of these show up in a mortgage quote, and all of them show up in your bank account.
A sane bottom line
Keep total housing at or under 28% of gross income — under 25% if you want real breathing room. Keep an emergency fund of three to six months of expenses after closing, not before. And if the only way to make a house work is a 45% debt ratio and an empty savings account, the house is telling you something. There will be other houses.