The Most Common Question Before Buying a Home
"How much house can I afford?" is the right question to ask before ever looking at listings. Starting with the answer — not the other way around — saves you from falling in love with a home that will strain your finances for decades.
The 28/36 Rule
The most widely used guideline for home affordability comes from traditional lending standards:
- 28% rule: Your monthly housing payment (PITI — principal, interest, taxes, insurance) shouldn't exceed 28% of your gross monthly income
- 36% rule: Your total debt payments (housing + car loans + student loans + credit cards) shouldn't exceed 36% of gross monthly income
Example: $80,000/year gross income → $6,667/month → max housing payment of $1,867/month.
What "Housing Payment" Actually Includes
The monthly payment lenders look at — and what you actually pay — is PITI:
- Principal: The portion paying down your loan balance
- Interest: The lender's cost for the loan
- Taxes: Property taxes (typically 1–2% of home value annually, divided by 12)
- Insurance: Homeowner's insurance (~0.5–1% of home value annually)
- PMI: If your down payment is less than 20% (0.5–1.5% of loan annually)
- HOA fees: If applicable ($100–500+/month in many communities)
Working Backward: From Payment to Home Price
Once you know your maximum monthly payment, you can work backward to a home price. The key variables: your down payment, interest rate, and loan term.
| Monthly Budget | 6% Rate, 30yr, 20% down | 7% Rate, 30yr, 10% down |
|---|---|---|
| $1,500/mo | ~$250,000 home | ~$205,000 home |
| $2,000/mo | ~$333,000 home | ~$273,000 home |
| $2,500/mo | ~$416,000 home | ~$341,000 home |
| $3,000/mo | ~$500,000 home | ~$410,000 home |
Note: These are P&I only — add taxes, insurance, and PMI for actual total payment.
Beyond the Payment: Hidden Costs of Homeownership
New buyers consistently underestimate the ongoing costs beyond the mortgage:
- Maintenance: Budget 1–2% of home value per year for repairs and upkeep ($3,000–6,000 on a $300,000 home)
- Closing costs: 2–5% of the purchase price paid at closing ($6,000–15,000 on a $300,000 home)
- Moving costs: $1,000–5,000+ depending on distance
- Initial furnishing and repairs: $5,000–20,000 for most buyers
- Utility increases: Larger homes = higher heating, cooling, and water bills
How Lenders Actually Decide
What lenders approve and what you can comfortably afford aren't always the same thing. Lenders look at:
- Debt-to-income (DTI) ratio: Total monthly debts ÷ gross monthly income. Most conventional loans allow up to 43–45% DTI
- Credit score: Affects the rate you get and whether you qualify at all
- Employment history: Two years of stable employment in the same field preferred
- Down payment and assets
Important: A lender approving you for $400,000 doesn't mean $400,000 is comfortable. Lenders look at whether you can make the payment — not whether it leaves you room for savings, emergencies, or the life you want to live.
Use our home affordability calculator to find your number based on your income, debts, and down payment.