How Much House Can I Afford?
A common starting point is the 28/36 guideline: keep housing costs within 28% of gross monthly income and all debt payments within 36%. Take the lower budget, subtract tax and insurance, and work out the loan that payment supports. Add your down payment to get a price.
Example: on $100,000 a year with $500 of other debts, a $40,000 down payment and an illustrative 6.5% 30-year rate, the budget supports a home of about $345,874.
"How much house can I afford?" has two answers: what a lender might approve, and what fits your own budget. Lenders look mainly at your debt-to-income (DTI) ratio, which is your monthly debt payments divided by your gross monthly income (CFPB: what is a debt-to-income ratio?). This guide uses the long-standing 28/36 rule of thumb, which is also what Talreon's mortgage affordability calculator uses. It is a guideline, not a legal limit; many loan programmes allow higher ratios.
The 28/36 guideline
- Front-end ratio (28%): housing costs, meaning principal, interest, property tax and insurance (plus HOA dues or mortgage insurance if any), up to about 28% of gross monthly income.
- Back-end ratio (36%): all monthly debt payments, including the new housing cost plus car loans, student loans and card minimums, up to about 36%.
Whichever limit is lower sets your housing budget.
The formulas
Principal & interest budget = housing budget − monthly tax & insurance
Maximum loan = P&I budget × [1 − (1 + r)−n] ÷ r
Maximum price = maximum loan + down payment
r = annual rate ÷ 12 ÷ 100, n = years × 12
Worked example
A household earns $100,000 a year, pays $500 a month on a car loan, has a $40,000 down payment, expects $400 a month of property tax and insurance, and is looking at an illustrative 6.5% rate over 30 years.
- Monthly income: $100,000 ÷ 12 = $8,333.33.
- Front-end limit: 28% × $8,333.33 = $2,333.33.
- Back-end limit: 36% × $8,333.33 − $500 = $3,000 − $500 = $2,500.
- Housing budget: the lower figure, $2,333.33.
- P&I budget: $2,333.33 − $400 = $1,933.33.
- Maximum loan: $1,933.33 × [1 − (1.0054167)−360] ÷ 0.0054167 ≈ $305,874.
- Maximum price: $305,874 + $40,000 ≈ $345,874.
The 6.5% rate is an example, not a current market rate. Try your own numbers in the calculator.
What changes the answer most
- Interest rate: a higher rate means the same monthly budget supports a smaller loan.
- Other debts: paying off a car loan can lift the back-end limit, which only helps if that limit is the one holding you back.
- Down payment: every extra dollar down adds a dollar to the price without changing the payment.
- Tax and insurance: high property tax, insurance or HOA dues come straight out of the P&I budget.
- Loan term: a 15-year loan has a much higher payment than a 30-year loan, so it supports a smaller loan for the same budget, but costs far less interest overall.
What a lender might approve vs what you can afford
Approval is based on gross income and minimum debt payments. It does not know about childcare, savings goals, irregular income or how secure your job is. Before you commit, it is worth checking the payment against your take-home pay and keeping an emergency fund after the down payment and closing costs.
Costs the estimate leaves out
- Closing costs and moving costs, which reduce the cash left for a down payment.
- Private mortgage insurance (PMI) when the down payment is under 20%, unless you add it to tax and insurance.
- Maintenance and repairs, which do not appear in any lender ratio.
- Outside the US, different rules apply. In Singapore, for example, HDB and MAS set the MSR and TDSR; see how HDB loan eligibility works.
Common mistakes
- Using take-home pay in a ratio built for gross income, or the other way round.
- Forgetting tax and insurance, which can overstate the loan you can carry.
- Treating the maximum as a target instead of a ceiling.
- Comparing loans by rate only, without the fees and APR on the lender's disclosure.
Frequently asked questions
How much house can I afford on my salary?
Under the 28/36 guideline, your housing costs should stay within 28% of gross monthly income and all debts within 36%. Work out the loan your P&I budget supports and add your down payment. On $100,000 a year with $500 of debts, $40,000 down and an illustrative 6.5% rate, that is about $345,874.
What is the 28/36 rule?
A rule of thumb that housing costs should not exceed about 28% of gross monthly income and total debt payments about 36%. It is a guideline; many loan programmes allow higher ratios.
What is a debt-to-income ratio?
Your total monthly debt payments divided by your gross monthly income, shown as a percentage. Lenders use it to judge how much more debt you can carry.
Does a bigger down payment let me afford a more expensive home?
Yes. The down payment adds directly to the price you can pay without changing the monthly payment, and a 20% down payment usually avoids private mortgage insurance on a conventional loan.
Sources
Related tools
- Mortgage affordability calculator — maximum price under the 28/36 rule.
- Mortgage calculator — monthly payment on a chosen price.
- Debt-to-income calculator — your current DTI ratio.
- Amortization schedule calculator — how the loan is repaid over time.
Related guides
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