How Much House Can I Afford? The Rules Lenders Actually Use
Before you start browsing listings, you need to know your price range. Banks will not just lend you whatever you ask for -- they use specific ratios to decide how much mortgage you qualify for. Understanding these rules helps you shop smarter, avoid overextending your finances, and negotiate from a position of knowledge.
The 28/36 Rule
The most widely used guideline in mortgage lending is the 28/36 rule. It has two parts:
- 28% -- Front-end ratio: Your total monthly housing costs (mortgage payment, property taxes, homeowner's insurance, and any HOA fees) should not exceed 28% of your gross monthly income.
- 36% -- Back-end ratio: Your total monthly debt payments (housing costs plus car loans, student loans, credit card minimums, and any other debt) should not exceed 36% of your gross monthly income.
The more restrictive of these two limits determines how much you can borrow. If you have significant existing debt, the 36% back-end ratio will be the binding constraint, even if your housing costs alone are under 28%.
Applying the 28% Rule at Different Incomes
Here is what the 28% rule looks like at various salary levels. These estimates assume a 7% interest rate, 30-year fixed mortgage, 20% down payment, and average property taxes and insurance:
| Annual Income | Max Housing Payment (28%) | Estimated Home Price |
|---|---|---|
| $50,000 | $1,167/mo | $190,000-$215,000 |
| $75,000 | $1,750/mo | $280,000-$320,000 |
| $100,000 | $2,333/mo | $370,000-$420,000 |
| $150,000 | $3,500/mo | $560,000-$630,000 |
These are rough ranges. Your actual affordability depends on your interest rate, down payment, local property taxes, insurance costs, and existing debt. For a personalized estimate, use our home affordability calculator.
Try Our Free Home Affordability Calculator
Enter your income, debts, and down payment to see exactly how much house you can afford with a detailed monthly breakdown.
Calculate Your BudgetUnderstanding Debt-to-Income Ratio (DTI)
DTI is the percentage of your gross monthly income that goes toward debt payments. Lenders care about two types:
- Front-end DTI: Housing costs only. Lenders typically want this under 28%.
- Back-end DTI: All monthly debts combined. Most lenders cap this at 36-43%, though some FHA loans allow up to 50%.
Example: How debt reduces what you can afford
Consider two people who both earn $75,000 per year ($6,250/month gross):
Person A has no debt. Their 28% limit is $1,750/month for housing, and their 36% limit is $2,250 for all debt. Since they have no other debt, they can use the full $1,750 for housing.
Person B has a $400/month car payment and $300/month in student loans. Their 36% limit is still $2,250, but $700 is already spoken for. That leaves only $1,550 for housing -- even though they earn the same salary. That $200/month difference translates to roughly $30,000-$40,000 less home they can afford.
The Down Payment Factor
Your down payment directly affects how much house you can buy at a given monthly payment. The larger the down payment, the less you borrow, and the lower your monthly payment for the same home price.
- 20% down: The traditional target. No PMI required, which saves $100-$300/month on most loans.
- 10% down: More accessible, but you will pay PMI until you reach 20% equity.
- 3-5% down: Common for first-time buyers (FHA, conventional). Higher monthly payment due to larger loan and PMI.
- 0% down: Available through VA loans (military) and USDA loans (rural areas).
On a $300,000 home, putting 20% down ($60,000) means borrowing $240,000. At 7%, that is $1,597/month for P&I. With only 5% down ($15,000), you borrow $285,000 and pay $1,896/month plus PMI -- roughly $400 more per month total.
What Lenders Do Not Tell You
The amount a bank is willing to lend you and the amount you should actually spend are often different numbers. Lenders will approve the maximum they think you can handle, but their calculation does not account for:
- Retirement savings -- you should be saving 10-15% of income
- Emergency fund -- 3-6 months of expenses
- Home maintenance -- budget 1-2% of home value per year
- Lifestyle costs -- travel, hobbies, dining out, childcare
- Variable expenses -- utilities, food, gas are not fixed
Many financial advisors recommend keeping your housing costs at 25% or less of your gross income rather than the full 28% -- especially if you have other financial goals.
Pre-Approval vs. Pre-Qualification
Before house hunting, get pre-approved (not just pre-qualified). Pre-qualification is a rough estimate based on self-reported information. Pre-approval involves a credit check and income verification, giving you a concrete number that sellers take seriously.
Once you know your pre-approved amount, run those numbers through our mortgage payment calculator to see exactly what your monthly payment will look like -- including taxes, insurance, and PMI.
The Bottom Line
Start with the 28/36 rule to get a ballpark, then refine with our home affordability calculator. Factor in your down payment, existing debts, and lifestyle goals. The right home is one you can afford comfortably -- not one that stretches you to the maximum the bank allows.