How Much House Can I Afford? A Complete Guide

Before you start touring homes or applying for a mortgage, you need a clear answer to one critical question: how much house can you actually afford? Stretching beyond your means leads to financial stress, while being too conservative means missing out on homes that fit your budget. This guide walks you through the formulas lenders use and the personal factors you should weigh.

The 28/36 Rule

Most lenders follow the 28/36 rule to determine how much you can borrow:

• 28% rule: Your total monthly housing costs — including mortgage principal, interest, property taxes, and insurance (PITI) — should not exceed 28% of your gross monthly income.
• 36% rule: Your total monthly debt payments — housing costs plus car loans, student loans, credit card minimums, and other obligations — should not exceed 36% of your gross monthly income.

For example, if your household earns $8,000 per month gross, your maximum housing payment is $2,240 (28%) and your total debt load should stay under $2,880 (36%).

Factors That Affect Affordability

Beyond the basic ratio, several variables shift how much home you can realistically purchase:

• Down payment size: A larger down payment reduces your loan amount, monthly payment, and may eliminate private mortgage insurance (PMI).
• Interest rate: Even a 0.5% difference in rate can change your buying power by tens of thousands of dollars.
• Property taxes and HOA fees: These vary dramatically by location and eat into your 28% housing budget.
• Credit score: Higher scores unlock lower rates, increasing the price range you qualify for.
• Existing debt: Car payments, student loans, and credit card balances reduce the mortgage amount a lender will approve.

A Worked Example

Suppose a couple earns a combined $120,000 per year ($10,000 per month gross), has $500 per month in existing debt, and has saved $60,000 for a down payment:

• Maximum housing cost: $10,000 × 0.28 = $2,800/month
• Maximum total debt: $10,000 × 0.36 = $3,600 − $500 existing = $3,100 available for housing
• The binding constraint is the lower figure: $2,800/month
• At a 6.5% rate over 30 years, that payment supports roughly a $440,000 loan
• Add the $60,000 down payment and they can afford a home priced around $500,000

Common Mistakes to Avoid

• Maxing out your pre-approval: Just because a lender approves you for $500,000 does not mean you should spend that much. Leave a buffer for unexpected expenses.
• Forgetting closing costs: Budget 2% to 5% of the home price for closing costs on top of your down payment.
• Ignoring maintenance: Plan for roughly 1% of the home's value per year in maintenance and repairs.

Calculate Your Affordability Now

Plug in your income, debts, down payment, and current interest rates into our mortgage calculator to get a personalized estimate of the home price you can comfortably afford.

Knowing your true affordability range before you shop puts you in a stronger negotiating position and keeps your finances on solid ground for years to come.