How Much House Can You Afford?

The short answer

Affordability is a ratio, not a single dollar figure. The home price you can support depends on four moving parts: your gross income, the debts you already carry, how much you put down, and the mortgage rate you can get. Change any one of those and your maximum price moves. That is why two households earning the same salary can responsibly buy homes that differ by a hundred thousand dollars or more.

The practical method is to start from your income, apply the common lending limits, and then work backward to a price where the full monthly cost fits. Our mortgage affordability calculator does this for you: enter your income, debts, down payment, and an assumed rate, and it estimates a price range. The rest of this guide explains what the calculator is doing and how to read its answer with a clear head.

The 28/36 rule explained

The 28/36 rule is the most widely used shorthand for affordability. It sets two ceilings, both measured against your gross monthly income, which is your income before taxes.

• The front-end ratio (28 percent): your total monthly housing cost should stay at or below about 28 percent of gross monthly income. Housing here means the full payment, not just the loan.
• The back-end ratio (36 percent): all of your monthly debt payments combined, including housing plus car loans, student loans, minimum credit card payments, and other obligations, should stay at or below about 36 percent of gross monthly income.

Your real maximum is set by whichever limit you hit first. If you carry no other debt, the 28 percent housing limit usually binds. If you have a car payment and student loans, the 36 percent total-debt limit often binds sooner, which lowers how much you can spend on housing. A quick example, purely illustrative: on 7,000 dollars of gross monthly income, 28 percent is 1,960 dollars for housing and 36 percent is 2,520 dollars for all debt. If you already pay 700 dollars a month on a car and loans, the back-end limit leaves only about 1,820 dollars for housing, which is below the 1,960 dollar front-end figure, so the debt is the binding constraint.

What is actually in the monthly cost

The single most common affordability mistake is comparing only the loan payment. The number that matters for the 28 percent test is the full monthly housing cost, often abbreviated PITI plus extras. It has several parts.

• Principal and interest (P and I): the loan payment itself. This is what most online estimates show first. The mortgage calculator breaks it down for any price, rate, and term.
• Property tax: set by your local government as a share of the home value, billed yearly and usually collected monthly through escrow. Rates vary widely by location.
• Homeowners insurance: required by lenders and also collected through escrow. Premiums depend on the home, location, and coverage.
• Private mortgage insurance (PMI): an extra monthly charge that typically applies when your down payment is below 20 percent on a conventional loan. The guide to avoiding PMI explains when it applies and how to remove it.
• HOA dues: if the home is in a community with a homeowners association, these monthly dues count toward your housing cost even though they are not part of the loan.

Taxes, insurance, PMI, and HOA dues can add a meaningful amount on top of principal and interest. Because they are real cash out the door every month, a serious affordability estimate includes all of them. Leaving them out is how buyers end up approved for a payment they cannot comfortably carry.

How down payment and rate move your maximum

Once you fix a monthly cost ceiling from the 28/36 rule, two levers decide how much home that ceiling buys: your down payment and your mortgage rate.

Down payment

A larger down payment lowers the loan balance, which lowers principal and interest, and once you cross 20 percent down on a conventional loan it usually removes PMI as well. Both effects free up room under your monthly ceiling, so a bigger down payment can raise the price you can support, or lower the payment at the same price. The trade-off is that the cash is no longer available for reserves or investing. The down payment calculator shows how each amount changes the monthly cost, and our rent vs buy calculator weighs the opportunity cost of tying up that cash instead of renting and investing it.

Mortgage rate

Rate has a powerful effect on affordability because it changes the cost of every dollar borrowed for the life of the loan. A higher rate raises the monthly principal and interest, which means a smaller loan fits under the same ceiling, which lowers the price you can afford. A lower rate does the reverse. Because rates move with the market and with your credit profile, the price you can afford is not fixed. When you model affordability, use a current, realistic rate as an assumption, and try a slightly higher one to see how much cushion you would have if rates rose before you lock.

Affordable versus comfortable

A lender approval answers a narrow question: will the bank lend you this much. It does not answer the question that matters more to your life: can you live well while carrying this payment. Those are different, and the gap between them is where people get into trouble.

A payment can pass the 28/36 test and still squeeze you if it crowds out the things that keep your finances resilient. Before settling on a number, check a few things that the ratios do not capture.

• Emergency fund: buying a home does not pause the need for cash reserves; it raises it, because repairs are now your bill. Make sure the payment still lets you keep several months of expenses on hand.
• Savings rate: if the payment forces you to stop contributing to retirement or other goals, the home is costing more than the mortgage statement shows. Protect your savings rate first, then size the payment around it.
• Lifestyle and slack: a budget that only works in a perfect month is fragile. Choose a payment you could still cover during a lean stretch, a job change, or an unexpected expense.

A reasonable habit is to treat the lender maximum as the ceiling and aim somewhere below it for your target. The right distance below depends on how stable your income is and how much value you place on financial breathing room.

How to use the calculator

The fastest way to turn all of this into a number is to model it. Open the mortgage affordability calculator and work through it in order.

• Enter your gross monthly income, before taxes.
• Add your existing monthly debt payments, such as car loans, student loans, and minimum credit card payments, so the back-end ratio is accurate.
• Enter your planned down payment and an assumed mortgage rate. Use a realistic, current rate, and consider testing a higher one for safety.
• Include estimates for property tax, insurance, PMI if your down payment is below 20 percent, and HOA dues, so the full monthly cost is captured.

The calculator returns a price range built from the smaller of your front-end and back-end limits. Read the top of that range as a maximum, not a recommendation, then pick a target below it that still leaves room for your emergency fund and savings. From there, the mortgage calculator can show the exact monthly breakdown for a specific price, and the rent vs buy calculator can tell you whether buying at that price is likely to beat renting over the years you plan to stay.

This page is general information to help you reason about affordability; it is not personalized financial advice, a loan offer, or a prediction of rates or prices. The dollar figures here are illustrative examples only. When the stakes are high, confirm the numbers for your own situation and consider speaking with a qualified lender or financial professional.