How Much House Can I Afford?
“Affordable” has two definitions: the price a lender will approve, and the price that leaves the rest of your life intact. They are rarely the same number, and the gap between them is where “house poor” comes from.
The 28/36 rule
The traditional guideline lenders and financial planners use:
- Front-end ratio — 28%. Your total monthly housing payment (principal, interest, property tax, homeowners insurance, HOA dues, and PMI if any) should be no more than 28% of your gross monthly income.
- Back-end ratio — 36%. That housing payment plus every other monthly debt obligation — car loans, student loans, minimum credit-card payments, personal loans, child support — should be no more than 36% of gross income.
Whichever limit is tighter for your situation is your real ceiling.
Worked example
Gross income $10,000/month, with $650 of existing monthly debt payments:
| Calculation | Limit | |
|---|---|---|
| Front-end (28%) | $10,000 × 0.28 | $2,800 housing payment |
| Back-end (36%) | $10,000 × 0.36 − $650 | $2,950 housing payment |
The front-end is tighter, so $2,800 is the maximum housing payment under the classic rule. At a 6.5% rate with ~$500/month set aside for taxes and insurance, that supports a loan of roughly $360,000 — a home around $450,000 with 20% down.
If that same borrower had $1,500 of other monthly debt, the back-end limit would drop to $2,100 and cut the supportable home price by well over $100,000. Paying off a car loan before applying can genuinely buy you more house — see avalanche vs snowball.
How income maps to price (rough guide)
At a 6.5% rate, 20% down, and ~$500/month for taxes and insurance, using the 28% front-end cap:
| Gross annual income | ~Max housing payment | ~Home price |
|---|---|---|
| $60,000 | $1,400 | ~$180,000 |
| $90,000 | $2,100 | ~$300,000 |
| $120,000 | $2,800 | ~$430,000 |
| $160,000 | $3,733 | ~$600,000 |
| $200,000 | $4,667 | ~$770,000 |
These assume little other debt. Every $300/month of car and student-loan payments knocks roughly $45,000–50,000 off the price you qualify for.
How your credit score changes the number
Your score does not change your DTI, but it changes your rate, and the rate changes how much house a given payment buys. On a $2,800 payment budget with $500 for taxes/insurance (so $2,300 for principal and interest):
| FICO score | Typical rate | Loan that fits $2,300 P&I | Home price (20% down) |
|---|---|---|---|
| 760+ | 6.25% | ~$374,000 | ~$467,000 |
| 700–759 | 6.60% | ~$360,000 | ~$450,000 |
| 660–699 | 7.00% | ~$346,000 | ~$432,000 |
| 620–659 | 7.70% | ~$322,000 | ~$402,000 |
The gap between a 760 and a 640 score is roughly $65,000 of buying power on the same monthly budget — and about $150,000 in extra interest over 30 years. Improving your score before you apply is often worth more than a bigger down payment.
What lenders actually check
- Debt-to-income ratio (DTI) — the back-end number. Conventional loans often allow up to 43%, and some programs go to 50% with strong compensating factors (big reserves, high credit score, large down payment).
- Credit score — sets your rate; see above.
- Down payment and LTV — under 20% down adds PMI, raising the payment for the same price. A bigger down payment lowers both the loan and the rate.
- Cash reserves — months of mortgage payments still in the bank after closing. Two months is common; more can offset a higher DTI.
- Income stability — typically two years in the same job or field. Recent self-employment or commission income gets averaged and scrutinised.
The costs that eat the difference
A lender’s approval assumes your expenses stay flat. Homeownership does not:
- Maintenance and repairs — budget roughly 1% of the home’s value per year ($375/month on a $450,000 home). Some years zero; the year the HVAC and the water heater both fail, $12,000.
- Higher utilities — more square footage, plus water, sewer, trash, and lawn care.
- Property taxes and insurance that rise over time, sometimes sharply after a reassessment or in a hardening insurance market.
- Furnishing and first-year fixes.
- Life — job loss, medical bills, a new child, a family emergency.
Why the max is not the target
Buying at the top of your approval leaves no margin for any of the above. A widely used safer target is a total housing payment near 25% of take-home (net) pay, not 28% of gross. On the example income, take-home might be about $7,400/month, so 25% is roughly $1,850 — noticeably more conservative than the $2,800 the rule allows. The right answer is usually between the two.
How to run your own number
- Start from a payment you would be comfortable making even in a bad month, not the lender’s maximum.
- Subtract estimated taxes, insurance, HOA, and (if under 20% down) PMI to get the principal-and-interest budget.
- Work backward from that P&I figure and your likely rate to a loan amount, then add your down payment to get a price.
- Stress-test it: could you still cover the payment if your household lost one income for three months?
The affordability calculator does this backward for you — enter your income, debts and down payment and it applies the 28/36 rule to return a maximum price. Then model the actual payment, PMI, and full PITI with the mortgage calculator, and pressure-test the buy-versus-rent decision with the rent vs buy calculator.
The bottom line
The 28/36 rule caps your housing payment at 28% of gross income, or 36% of gross minus other debts — whichever is lower. Lenders may stretch to 43–50% DTI, but that is their risk tolerance, not yours. Your credit score can swing your buying power by tens of thousands of dollars, other debt drags it down, and the true cost of a home is well above the mortgage payment. Target closer to 25% of take-home pay and keep an emergency fund separate from the down payment.