How Much House Can I Afford? A Practical Way to Find Your Number

There are two answers to "how much house can I afford?" The first is what a lender will approve. The second is what you can live with comfortably once you own it. They are rarely the same number. Lender approvals are based on ratios and guidelines; your comfort depends on your whole life, including savings goals, job stability, and how much you like having money left at the end of the month. This guide walks through both.

Start with the 28/36 guideline

A long-standing rule of thumb for affordability is 28/36:

• 28%: Your total monthly housing cost (principal, interest, property taxes, homeowners insurance, mortgage insurance, and HOA dues) should be no more than about 28% of your gross monthly income.
• 36%: Your total monthly debt payments, including housing plus car loans, student loans, minimum card payments, and other debts, should be no more than about 36% of gross income.

These are guidelines, not laws. Many loan programs allow higher debt-to-income ratios, sometimes well above 40%. Just because a program allows it does not mean it is comfortable.

Worked example (illustrative numbers only)

All numbers are hypothetical for teaching. Use your own income, debts, and current quotes.

A household earns $96,000 a year, or $8,000 per month gross. They pay $500 per month on a car loan and student loans.

1. Housing limit at 28%: $8,000 × 0.28 = $2,240
2. Total debt limit at 36%: $8,000 × 0.36 = $2,880. Subtract $500 of other debts, leaving $2,380 for housing.
3. Use the lower figure: $2,240 per month for all housing costs.
4. Subtract non-loan costs: Suppose property taxes, homeowners insurance, and HOA dues total $550 per month. That leaves $1,690 for principal and interest.
5. Convert to a loan amount: At an illustrative 6.75% on a 30-year fixed, $1,690 per month supports a loan of roughly $260,000.
6. Add the down payment: With $40,000 down, the price range is around $300,000.

Change any input and the answer moves. A lower rate, smaller debts, or lower taxes raise the budget. A higher rate or a high-tax area lowers it.

Now check it against your real budget

Gross-income ratios ignore taxes, retirement contributions, childcare, and everything else that comes out of your paycheck. A more personal check uses take-home pay:

1. List your monthly take-home pay.
2. Subtract fixed costs other than housing: transportation, groceries, insurance, childcare, debt payments, subscriptions.
3. Subtract savings goals: retirement, emergency fund, other goals.
4. What is left is the most you can put toward housing without cutting into those goals.

If this number is lower than the 28/36 result, trust it. Many people find a housing payment closer to 25% of gross income, or a set share of take-home pay, leaves room to breathe.

Do not forget the costs of owning

Monthly mortgage payments are not the whole picture:

• Maintenance and repairs. A common planning range is 1% to 2% of the home's value per year, though older homes can need more.
• Utilities. A house often costs more to heat, cool, and power than an apartment.
• Property tax and insurance increases. These can rise over time, raising an escrowed payment even on a fixed-rate loan.
• Furnishing and moving costs.
• Closing costs, which are separate from the down payment.

Cash you need besides the down payment

Lenders look at whether you have enough cash to close and may want to see reserves afterward. Plan for:

• Down payment
• Closing costs, often a few percent of the loan
• Moving and immediate repairs
• An emergency fund that remains intact after closing

Emptying your savings to buy a house leaves you exposed to the first broken water heater or job disruption.

Factors that change what a lender will approve

• Credit score: affects rate and sometimes the maximum debt ratio allowed.
• Down payment: affects rate, mortgage insurance, and loan type.
• Loan program: conventional, FHA, VA, and USDA loans have different rules.
• Employment and income history: lenders want stable, documented income.
• Interest rates: a one-point rate change can shift buying power considerably.

Getting preapproved gives you a lender's view, but remember it is a ceiling, not a target.

Stress-test the payment before you shop

Before you start touring homes, try living on the new budget. For three to six months, set aside the difference between your current rent and the estimated full monthly housing cost, plus a maintenance allowance, in a separate savings account. If you can do that without strain, the number is probably realistic, and you will have built extra savings for closing costs or repairs. If it feels tight, lower your target price before you fall in love with a house you cannot comfortably carry.

It also helps to ask a few "what if" questions. What if property taxes rise after a reassessment? What if insurance premiums jump at renewal? What if one income is interrupted for a few months? A budget that survives those scenarios is one you can trust.

FAQ

What is a good debt-to-income ratio for a mortgage?

The 36% total-debt guideline is a common conservative benchmark. Many programs approve higher ratios, but a lower ratio usually means more flexibility and sometimes better pricing.

Should I use gross or take-home pay?

Lenders use gross income. For your own budgeting, take-home pay gives a more realistic sense of what you can afford month to month. Run both and use the more conservative result.

How much does a one-point rate change affect affordability?

It depends on the loan size, but a full percentage point higher can reduce the loan you can support at the same payment by roughly a tenth. Running your own numbers at a few different rates shows the effect clearly.

Find your range

The Rateboard home affordability calculator applies the 28/36 rule to your income and debts and backs into an estimated purchase price. Then use the mortgage payment calculator to check the full monthly cost of a specific home.

Rateboard guides are educational and are not financial advice. A lender's preapproval is the only way to know what you qualify for.