How Much House Can I Afford? The Complete Guide

How much house can you afford? It's the first question every homebuyer asks — and the answer is almost always more complicated than a lender's pre-approval letter suggests. Lenders tell you the maximum they'll loan. Your job is to figure out how much you actually want to borrow.

This guide walks through every factor: income rules of thumb, DTI calculations, down payment tradeoffs, and the hidden costs that crush first-time buyers' budgets.

Try our free Mortgage Affordability Calculator →

The 28/36 Rule: The Starting Point

Financial planners have used the 28/36 rule for decades as a housing affordability benchmark:

• 28% rule: Your monthly housing payment (principal, interest, property taxes, insurance — called PITI) should not exceed 28% of your gross monthly income.
• 36% rule: Your total monthly debt payments (housing + car loans + student loans + credit cards) should not exceed 36% of gross income.

If you earn $8,000/month gross:

• Max housing payment: $8,000 × 28% = $2,240
• Max total debt: $8,000 × 36% = $2,880
• If you have $600/month in car and student loans, your max housing payment drops to $2,280

What Lenders Actually Use: DTI Ratio

Lenders use your Debt-to-Income ratio (DTI) to qualify you. Most conventional loans cap at 43–45% back-end DTI (total debt / gross income). FHA loans can go to 50% with compensating factors.

So on $8,000/month income, a lender might approve a $3,200/month total debt payment. That's $800 more than the conservative 36% rule — meaning the bank will let you borrow significantly more than financial advisors recommend.

Use our DTI Calculator to see exactly where you stand before talking to a lender.

Income-Based Affordability Tables

Here's a quick reference for home price ranges based on annual income, assuming 20% down, 7% mortgage rate, and the 28% rule:

Annual Income	Max Monthly Payment (28%)	Approx. Loan Amount	Approx. Home Price (20% down)
$60,000	$1,400	~$210,000	~$262,500
$80,000	$1,867	~$280,000	~$350,000
$100,000	$2,333	~$350,000	~$437,500
$120,000	$2,800	~$420,000	~$525,000
$150,000	$3,500	~$525,000	~$656,250
$200,000	$4,667	~$700,000	~$875,000

Note: These are rough guidelines. Actual rates, taxes, and insurance vary significantly by location.

The Real Monthly Payment: What Gets Included

First-time buyers often underestimate total housing costs. Your "mortgage payment" includes more than principal and interest:

• Principal & Interest (P&I): The base loan payment
• Property taxes: Typically 0.5–2.5% of home value per year, paid monthly into escrow
• Homeowner's insurance: $100–$250/month for a typical home
• PMI: Required if less than 20% down — usually 0.5–1.5% of loan annually
• HOA fees: $0 to $1,000+/month depending on community
• Maintenance reserve: Budget 1–2% of home value per year for repairs

On a $400,000 home with 10% down at 7% mortgage rate:

Component	Monthly Cost
Principal & Interest	$2,395
Property taxes (1.2%)	$400
Homeowner's insurance	$150
PMI (0.8%)	$240
Total PITI	$3,185

That's the number that should fit within 28% of your gross income — not just the P&I. Use our Mortgage Payment Calculator to break down your specific scenario.

Down Payment Scenarios: How Much Should You Put Down?

Less Than 20% Down

FHA loans allow 3.5% down. Conventional loans allow 3% down for first-time buyers. The catch: PMI. On a $350,000 loan, PMI at 0.8% costs $233/month until you reach 20% equity.

20% Down

The classic target. No PMI, better rates, lower monthly payment. On a $400,000 home, putting 20% down ($80,000) instead of 10% ($40,000) saves you $240/month in PMI — roughly $2,880/year.

The Opportunity Cost Argument

Some financial advisors argue against 20% down: if you can earn 7–8% investing that extra $40,000, you might net more than the PMI savings. This logic holds in certain rate environments but breaks down when mortgage rates are high relative to expected returns.

Hidden Costs First-Time Buyers Miss

Closing costs: Typically 2–5% of the loan amount. On a $350,000 loan, that's $7,000–$17,500 due at closing — on top of your down payment.

Moving costs: $1,000–$5,000 for local moves; significantly more for cross-country.

Immediate repairs and upgrades: Almost every home needs something immediately — a new fridge, a deep clean, paint. Budget $2,000–$10,000 for first-month costs.

Property tax reassessment: When a home sells, some counties reassess at the sale price. If the previous owner had a low assessed value, your taxes could jump significantly.

Utilities: If you're moving from a small apartment to a 2,000 sq ft house, your utility costs may double.

Location Matters More Than Almost Anything

The same $500,000 buys wildly different homes in different markets:

• San Francisco: a 1BR condo
• Austin, TX: a 3BR suburban home
• Cleveland, OH: a 4BR house with a yard

Property taxes vary dramatically too. New Jersey's average effective rate is ~2.2%. Hawaii's is ~0.3%. On a $500,000 home, that's $11,000/year vs. $1,500/year — a $792/month difference in your total housing cost.

How to Decide How Much to Spend

The honest answer: ignore the maximum approval amount and work backward from what you want your life to look like.

1. Calculate your actual take-home pay after taxes and retirement contributions.
2. List your essential non-housing expenses: food, transportation, insurance, childcare, debt minimums.
3. Decide how much you want for savings, discretionary spending, and fun.
4. What's left is your real housing budget — not a percentage of gross income.

Many financial planners now prefer the 25% of take-home pay rule rather than 28% of gross — it's more conservative and accounts for varying tax situations.

Red Flags That You're Buying Too Much House

• You'd have less than 3 months of expenses in emergency funds after closing
• Your housing payment would exceed 35% of your take-home pay
• You'd have to stop contributing to your 401k to afford the mortgage
• The only way to afford it is the maximum possible term (30 years) with the maximum possible DTI
• You're counting on overtime, bonuses, or a second income that isn't guaranteed

Use the Tools

The math here has a lot of moving parts. Run your actual numbers:

• Mortgage Affordability Calculator — Input income and debts, get max purchase price
• Mortgage Payment Calculator — Enter a price and see your full monthly payment including taxes and insurance
• DTI Calculator — See if your ratio qualifies you for conventional lending

Frequently Asked Questions

How much house can I afford on a $70,000 salary?

Using the 28% rule: $70,000 / 12 × 28% = $1,633/month in housing costs. At 7% rates with 20% down, that supports roughly a $245,000–$270,000 home, depending on taxes in your area. With a smaller down payment and PMI, the home price ceiling drops.

What's the maximum DTI for a mortgage?

Conventional loans typically allow up to 43–45% back-end DTI. FHA loans allow up to 50% with compensating factors (higher credit score, reserves). However, being approved at 45% DTI means 45 cents of every gross dollar goes to debt — most financial planners recommend staying under 36%.

Does 20% down still make sense in 2026?

It depends on your liquid savings and opportunity cost. If 20% down wipes out your emergency fund, 10% down plus PMI is safer. If you have plenty of liquid savings, 20% down eliminates PMI and often gets you a slightly better rate. Run the actual numbers for your situation.

What if I have student loans — how does that affect mortgage affordability?

Student loan payments count toward your back-end DTI. A $500/month student loan payment effectively reduces your maximum mortgage payment by $500. For income-driven repayment plans, lenders use either the actual payment or 0.5–1% of the loan balance, depending on the loan program.

How much should I have saved before buying a house?

You need: down payment + closing costs (2–5% of loan) + 3–6 months emergency fund + first-month costs ($2,000–$10,000). On a $350,000 home with 10% down, that's roughly $35,000 + $10,500 + $15,000 + $5,000 = $65,500 minimum before you're truly ready.