How Much House Can I Afford? A Step-by-Step Guide

How Much House Can I Afford?

“How much house can I afford?” is the first question most homebuyers ask. Banks will tell you the maximum they’ll lend you, but that number is almost always more than you should spend. The amount a bank approves and the amount you can comfortably afford are two very different things. This guide walks through the math, the rules, and the real-world factors that determine your true home buying budget.

The 28/36 Rule Explained

The most widely used guideline for home affordability is the 28/36 rule:

• 28% Rule (Front-End Ratio): Your total monthly housing costs — mortgage payment, property taxes, homeowners insurance, and HOA fees (PITI) — should not exceed 28% of your gross monthly income.
• 36% Rule (Back-End Ratio): Your total monthly debt payments — housing costs plus car payments, student loans, credit cards, and other debts — should not exceed 36% of your gross monthly income.

Example: If your household gross income is $100,000/year ($8,333/month):

• Maximum housing payment: $8,333 x 0.28 = $2,333/month
• Maximum total debt payments: $8,333 x 0.36 = $3,000/month
• If you have $500/month in existing debt payments, your maximum housing payment drops to $2,500/month (but 28% rule caps it at $2,333)

Affordability by Income (2026)

Using the 28% rule, a 6.75% mortgage rate, 20% down payment, 1.1% property tax, and $150/month insurance:

Household Income	Max Monthly Housing	Approximate Home Price	Monthly P&I
$50,000	$1,167	$160,000	$831
$75,000	$1,750	$250,000	$1,297
$100,000	$2,333	$340,000	$1,763
$125,000	$2,917	$430,000	$2,230
$150,000	$3,500	$525,000	$2,722
$200,000	$4,667	$710,000	$3,683

These estimates assume no other significant debts. Existing debt payments reduce your affordable home price.

Step-by-Step: Calculate Your Affordable Home Price

Step 1: Determine your gross monthly income

Include all reliable, documentable income: salary, bonuses (if consistent), rental income, alimony, etc. If income varies, use the average of the past two years or the lower of the two years.

Step 2: Apply the 28% rule

Multiply gross monthly income by 0.28 to find your maximum total housing payment.

$8,333 x 0.28 = $2,333/month maximum housing cost

Step 3: Subtract non-mortgage housing costs

Estimate property taxes (1.1% of home value / 12), homeowners insurance (~$150/month), and any HOA fees.

For a $350,000 home: $321/month property tax + $150 insurance = $471/month $2,333 - $471 = $1,862 available for mortgage payment

Step 4: Calculate the loan amount

Using a mortgage calculator with your available payment ($1,862) at current rates (6.75% for 30 years), the maximum loan amount is approximately $286,000.

Step 5: Add your down payment

$286,000 loan + $71,500 down payment (20%) = $357,500 maximum home price.

Step 6: Check the back-end ratio

Total all monthly debt payments: housing ($2,333) + car loan ($350) + student loans ($200) + credit cards ($100) = $2,983. Is $2,983 under 36% of gross income ($3,000)? Barely. Consider a lower price point for comfort.

How Down Payment Affects Affordability

The down payment has a dramatic impact on what you can afford — and what you’ll pay over time:

Down Payment	On a $400,000 Home	Loan Amount	Monthly P&I	PMI	Total Monthly
3% ($12,000)	Low upfront	$388,000	$2,517	$226	$2,743
5% ($20,000)	Moderate	$380,000	$2,465	$198	$2,663
10% ($40,000)	Moderate	$360,000	$2,335	$150	$2,485
20% ($80,000)	Higher upfront	$320,000	$2,076	$0	$2,076

The 20% down payment eliminates PMI entirely, saving $150-$226/month. But saving $80,000 takes years, and during that time home prices may rise faster than you can save.

What Banks Will Approve vs What You Should Spend

Banks will often approve you for a 43-50% debt-to-income ratio — far more than the conservative 28/36 rule suggests. Here’s why you should be cautious:

Bank maximum (43% DTI) on $100,000 income:

• Maximum total debt payments: $3,583/month
• With $500 in existing debt: $3,083/month available for housing
• Approximate home price: $460,000

Conservative budget (28/36) on $100,000 income:

• Maximum housing: $2,333/month
• With $500 in existing debt: $2,333/month for housing (28% rule is the binding constraint)
• Approximate home price: $340,000

That’s a $120,000 difference. Buying at the bank’s maximum leaves almost no margin for unexpected expenses, job loss, or lifestyle changes. House-poor is a real risk.

The Hidden Costs That Reduce Affordability

Your mortgage payment is just the beginning. Budget for these often-overlooked costs:

Maintenance and repairs: 1-2% of home value per year A $400,000 home costs $4,000-$8,000/year in maintenance. This includes HVAC servicing, plumbing repairs, appliance replacements, exterior maintenance, and eventual big-ticket items like roof replacement ($8,000-$15,000) and HVAC replacement ($5,000-$12,000).

Utilities: $200-$500/month more than renting Larger homes cost more to heat, cool, and maintain. Water, sewer, trash, and electricity bills are typically higher than apartment living.

Furniture and furnishing: $5,000-$20,000+ That extra bedroom, the backyard, the finished basement — they all need furniture, window treatments, and equipment (lawn mower, snow blower, tools).

Property tax increases: 2-5% annually Your property tax assessment can increase each year, raising your housing costs even with a fixed-rate mortgage.

Affordability by City (2026)

The same income affords very different homes depending on location:

City	Income Needed for Median Home	Median Home Price	28% Monthly Budget
San Francisco	$310,000	$1,250,000	$7,233
New York (Manhattan)	$245,000	$980,000	$5,717
Boston	$185,000	$720,000	$4,317
Denver	$130,000	$510,000	$3,033
Atlanta	$95,000	$370,000	$2,217
Dallas	$98,000	$380,000	$2,287
Indianapolis	$68,000	$260,000	$1,587
Memphis	$55,000	$210,000	$1,283

Conservative vs Aggressive Budgeting

Conservative approach (recommended for most buyers):

• Housing at 25% or less of gross income
• 20% down payment
• 6-month emergency fund after closing
• No other high-interest debt
• Budget 2% of home value for annual maintenance

Moderate approach:

• Housing at 28% of gross income (the 28/36 rule)
• 10-20% down payment
• 3-month emergency fund after closing
• Only low-interest debt (student loans, car)
• Budget 1.5% of home value for annual maintenance

Aggressive approach (higher risk):

• Housing at 33%+ of gross income
• 3-5% down payment
• Minimal emergency fund
• Existing consumer debt
• Not recommended; high risk of becoming house-poor

Frequently Asked Questions

Should I buy at the maximum the bank approves?

No. Lenders approve based on your ability to make payments, not your ability to live comfortably. They don’t account for retirement savings, children’s education, travel, or the fact that you enjoy eating out. Target 25-28% of gross income for housing, maximum.

How does student loan debt affect affordability?

Significantly. If you pay $400/month in student loans, that’s $400/month less available for housing under the 36% back-end ratio. On a $100,000 income, $400/month in student loans reduces your affordable home price by roughly $60,000.

Is it better to buy a cheaper home or wait and save more?

It depends on your market. If home prices are rising 5% per year, waiting to save an extra $20,000 means the home you want may cost $20,000 more. In appreciating markets, buying sooner with a smaller down payment (and PMI) can be mathematically better than waiting. In stable or declining markets, saving more makes sense.

What if my spouse and I have different incomes?

Use your combined gross income for the calculation. If one spouse has poor credit, you might qualify for better terms by applying with only the higher-credit spouse, but you’ll be limited to that single income for qualification.

How much should I have saved beyond the down payment?

At minimum, budget for: closing costs (2-5% of home price), moving expenses ($2,000-$10,000), immediate home needs (locks, minor repairs, basic furnishing: $3,000-$5,000), and a 3-6 month emergency fund. For a $400,000 home with 20% down, total savings needed is roughly $105,000-$120,000.