How Much House Can You Afford? The Complete Guide

Buying a home is the largest financial decision most people ever make — and the most common mistake is starting with the question “what can I get approved for?” instead of “what can I comfortably afford?” Lenders will often approve you for more than you should spend. Here’s how to run the math yourself.

The Two Rules Lenders Use

The 28% Rule (Front-End Ratio)

Your total monthly housing payment — principal, interest, property taxes, insurance, and PMI if applicable (PITI) — should not exceed 28% of your gross monthly income.

Example: Gross income $7,500/month × 28% = $2,100/month maximum housing payment.

The 36% Rule (Back-End Ratio / DTI)

Your total monthly debt payments — housing plus all other recurring debt (car loans, student loans, credit cards, personal loans) — should not exceed 36% of gross monthly income.

Example: Gross income $7,500/month × 36% = $2,700/month maximum total debt. If you already pay $400/month in student loans and $350 in car payments, your maximum housing payment drops to $2,700 - $750 = $1,950/month.

Together, these form the 28/36 rule — the classic affordability benchmark used by financial planners and traditional lenders. Note that many lenders today approve DTIs up to 43% or even 50% for qualified borrowers. Being approved isn’t the same as being able to afford it comfortably.

From Monthly Payment to Home Price

Once you know your maximum monthly payment, you can work backward to a home price. Use our mortgage calculator to test different scenarios, or follow the math below.

Inputs needed:

• Your maximum monthly P&I payment (subtract taxes, insurance, PMI from your housing budget)
• Current interest rate (30-year fixed ~6.875% in 2026)
• Loan term (30 or 15 years)

Formula: Maximum loan = Monthly payment × [(1+r)^n - 1] / [r(1+r)^n]

For a $1,700/month P&I budget at 6.875% over 30 years:

• Monthly rate r = 6.875% / 12 = 0.5729%
• n = 360 months
• Maximum loan ≈ $256,000

With a 20% down payment, that supports a home price of approximately $320,000.

What Goes Into the Monthly Payment

Many buyers forget components beyond P&I when budgeting:

Component	Typical Monthly Amount	Notes
Principal & Interest	Varies	Fixed for life of loan
Property Tax	$200–$600+	~1.1% annually, varies by state
Home Insurance	$100–$200	~$1,500–$2,400/year
PMI	$50–$200	Required if down < 20%; ~0.85% annually
HOA fees	$0–$500+	If applicable

Run all these through the mortgage calculator to see the full picture before committing to a price range.

The Down Payment Decision

20% Down: The Traditional Target

Putting 20% down eliminates PMI, gives you immediate equity, and signals creditworthiness to lenders. On a $350,000 home, that’s $70,000 — a significant hurdle.

Benefits: No PMI (~$150-200/month savings), better rate offers, lower monthly payment.

Less Than 20% Down

FHA loans allow as little as 3.5% down (with a 580+ credit score). Conventional loans allow 3-5% down for qualified buyers. But you’ll pay PMI until you reach 20% equity.

The PMI math: On a $350,000 home with 5% down ($17,500), your PMI at 0.85% on a $332,500 loan = ~$235/month. Over 7 years until you hit 20% equity, that’s roughly $20,000 extra paid. The 20% down saves money long-term, but forcing yourself to save longer means more months renting.

The Opportunity Cost Argument

Some financial advisors argue against 20% down: if your $70,000 down payment alternative would earn 7%+ annually in investments, keeping the money invested while taking a 6.875% mortgage creates negative spread — you’d be better off with a larger down payment. In practice, the guaranteed “return” of avoiding 6.875% interest often beats uncertain market returns.

How Credit Score Affects Affordability

Your credit score directly impacts your mortgage rate — and thus how much home you can afford at a given payment:

Credit Score	Approximate 30-Yr Rate	Monthly P&I ($300K loan)
760+	6.50%	$1,896
720-759	6.75%	$1,946
680-719	7.00%	$1,996
640-679	7.50%	$2,098
620-639	8.00%	$2,201

The difference between a 760 and 640 score on a $300,000 loan: $202/month, or $72,720 over 30 years.

State and Local Factors

Where you buy significantly affects affordability beyond home prices:

• Property tax rates: New Jersey (~2.23%) vs. Hawaii (~0.28%) — a $400,000 home costs $745/month more in annual taxes in NJ
• State income tax: States with no income tax (Texas, Florida, Nevada) mean more take-home pay available for housing
• Insurance costs: Florida hurricane insurance, California wildfire insurance can add hundreds per month
• HOA fees: Condos and planned communities in high-cost metros often add $300-700/month

Use the paycheck calculator for your state to see exactly how much take-home pay you have to work with.

The Emergency Fund Requirement

Before buying, you should have:

1. Down payment (3-20% of home price)
2. Closing costs: 2-5% of loan amount (typically $6,000-$15,000 on a $300K loan)
3. Emergency fund: 3-6 months of expenses — including the new, higher housing costs
4. Repair reserve: 1-2% of home value annually for maintenance (a $350K home needs $3,500-$7,000/year)

Many first-time buyers drain all savings into the down payment and closing costs, leaving nothing for the inevitable broken HVAC or roof repair.

First-Time Buyer Programs

Most states offer assistance programs that can improve affordability:

• FHA loans: 3.5% down, more lenient credit requirements
• VA loans: 0% down for eligible veterans and service members — no PMI
• USDA loans: 0% down in eligible rural areas
• State down payment assistance: Many states offer grants or low-interest second mortgages of $5,000-$25,000 for first-time buyers
• Good Neighbor Next Door: 50% discount for teachers, firefighters, and law enforcement in HUD-designated areas

The Real Affordability Test

Beyond the math, ask yourself:

• Can I make this payment if one income disappears for 3-6 months?
• Am I still saving 10-15% of income for retirement after this payment?
• Does this leave room for childcare, healthcare costs, car replacement?
• Am I buying at the top of my range or leaving buffer?

The 28/36 rule is a guideline — the right answer is the payment that lets you sleep at night, maintain savings, and handle emergencies without panic.

Quick Affordability Reference

Gross Annual Income	28% Rule (Monthly)	Max Home Price (20% down, 6.875%)
$60,000	$1,400	~$200,000
$80,000	$1,867	~$265,000
$100,000	$2,333	~$330,000
$120,000	$2,800	~$400,000
$150,000	$3,500	~$500,000

These figures assume 20% down, 6.875% rate, and that full 28% goes to P&I (before taxes/insurance). Actual maximums will be lower once you add taxes, insurance, and existing debt payments.

Use the mortgage calculator to model your exact situation with your state’s property tax rates, your specific rate offer, and any PMI.

Key Takeaways

• 28/36 rule: Housing ≤ 28% of gross income; all debt ≤ 36%
• Calculate your max monthly payment first, then work backward to a home price
• Don’t forget property taxes, insurance, PMI, and HOA — they can add $500-1,000/month
• Credit score difference of 120 points can cost $200+/month on the same loan
• States with no income tax give you more take-home pay for housing
• Budget closing costs (2-5%) and a repair reserve (1-2%/year) separately from the down payment
• Being approved for more than you should spend is common — use the 28/36 rule, not lender maximums