How Much House Can You Afford? A Plain-English Guide

Start with the 28/36 rule

The 28/36 rule is a quick budget check. It is not a law, and it is not a guarantee that a particular lender will approve you. It is a useful way to keep a home payment from crowding out the rest of your life.

Gross income means income before taxes and other paycheck deductions. Under the first part of the rule, you would aim to spend no more than 28% of gross monthly income on PITI: principal, interest, taxes and insurance.

The second part says all required monthly debt payments—including PITI, car loans, student loans, credit-card minimums and other loans—should total no more than 36% of gross monthly income. That percentage is a form of debt-to-income ratio, or DTI: the share of gross monthly income already committed to debt payments.

Use the smaller limit. If the housing limit says $1,900 but existing debts leave only $1,450 under the all-debt limit, $1,450 is the safer starting ceiling. Even then, adjust down if childcare, medical costs, saving goals or an irregular income make the result uncomfortable.

A worked example: $80,000 household income

Suppose a household earns $80,000 a year before taxes. Here is the math, using the figures exactly as stated:

A maximum monthly payment does not translate to one fixed home price. Mortgage interest rates, the loan length, down payment, taxes and insurance all change the price that fits. Use the mortgage affordability calculator to run your own numbers, then use the mortgage payment calculator to test a specific price and rate.

What lenders actually look at

A lender is asking two different questions: “Can this borrower reliably repay the loan?” and “How much risk would we take by approving it?” These factors help answer both.

1. 1
   Income stability

   Lenders want income that is documented and likely to continue. Regular paychecks are simple to verify. Self-employed or variable income may require tax returns and a longer history so the lender can calculate a dependable average.

2. 2
   Debt-to-income ratio

   Your DTI compares required monthly debt payments with gross monthly income. Lower usually means more room for a mortgage. Approval rules vary by lender and loan program, so 36% is a planning guide rather than a universal cutoff.

3. 3
   Credit score and credit history

   A credit score is a three-digit estimate of how likely you are to repay borrowed money. Scores generally run from 300 to 850; higher scores can improve approval odds and interest rates. Lenders also review the report behind the score for late payments, balances and recent applications.

4. 4
   Down payment size

   The down payment is cash you put toward the price upfront. More money down means a smaller loan and more ownership from day one, but draining every dollar to reach 20% can leave you unprepared for repairs or job changes.

5. 5
   Cash reserves

   Reserves are savings left after the down payment and closing costs. They show that you can keep paying if income pauses or a major expense arrives. Lenders may measure reserves in months of mortgage payments.

The number a lender approves is a ceiling, not a spending target. A lender does not see every priority in your life. You do.

You may not need 20% down

Twenty percent can reduce borrowing and often avoids mortgage insurance, but it is not the standard entry ticket many people assume. Lower-down-payment options exist:

The honest trade-off is cost. With a small down payment, you borrow more and may pay mortgage insurance—coverage that protects the lender, not you, if the loan is not repaid. The rules and duration differ by loan type. VA and USDA loans can also have program-specific fees. Compare the full monthly payment and upfront charges, not only the advertised down-payment percentage.

If you are deciding whether to put more cash into the house or keep some invested, compare a larger down payment with investing the difference. Keep uncertainty in mind: investment returns are not guaranteed, while a smaller loan reduces a known cost.

The payment is not the whole cost

A mortgage quote can look manageable and still leave the monthly budget stretched. Add these often-forgotten line items before choosing a price.

• Property taxes

  Local taxes can change by city, county, school district and home value. They may rise over time even if your mortgage’s principal and interest stay fixed.

  Where to find it: the property listing, county appraisal or tax office record, and lender estimate.
• Homeowners insurance

  Premiums depend on the property, coverage, location and insurer. Flood or other separate coverage may be needed and is not automatically included.

  Where to find it: request real quotes for the address before committing.
• Maintenance and repairs

  A common rule of thumb is to budget about 1% of the home’s value per year. That is $4,000 a year on a $400,000 home, or about $333 a month. Actual costs are uneven: some years are quiet, while a roof, air conditioner or plumbing repair can be expensive.

  Where to find it: inspection findings, the home’s age and your own repair history.
• HOA dues

  A homeowners association, or HOA, charges owners for shared services or community upkeep. Dues can rise, and an HOA can impose a special assessment—a separate charge for a large project.

  Where to find it: the listing and the HOA’s budget, fee schedule and meeting records.
• Closing costs

  These are one-time costs for arranging and completing the purchase, such as lender charges, appraisal, title services, prepaid taxes and insurance. They are separate from the down payment.

  Where to find it: the lender’s Loan Estimate; test a range with the closing cost calculator.

Estimate cash needed for closing costs before treating your savings as available for a down payment. If a lender offers “points,” use the mortgage discount points calculator to find the break-even point. A discount point is an upfront fee paid in exchange for a lower mortgage rate; the break-even point is how long monthly savings take to recover that fee.

Renting versus buying: neither always wins

Buying can build equity—your ownership value in the home—as the loan balance falls and the property value changes. But buying also adds transaction costs, repair risk and responsibility. Renting buys flexibility and transfers most major repair work to a landlord, but it does not build home equity.

Do not compare rent only with mortgage principal and interest. Compare rent with the full ownership cost, then consider how long you expect to stay. The rent-versus-buy calculator can compare both paths over time.

Gather these numbers before house-hunting

A realistic search begins with documents, not open houses. Here is what to collect—and exactly where the numbers usually live.

• Income

  Use recent pay stubs for current gross pay. If income varies or you are self-employed, use recent tax returns and year-to-date business records. A W-2 shows wages from an employer for a past tax year; a 1099 reports certain nonemployee or other income.

  Look for: gross pay before deductions and the frequency of each paycheck.
• Monthly debt payments

  Use the required monthly amount—not the total balance—for car loans, student loans, personal loans and credit cards. Include co-signed debt that still appears as your obligation.

  Look for: the “minimum payment due” on each latest statement and your credit report.
• Savings

  Separate money available for the down payment from money needed for closing, moving, immediate repairs and an emergency fund. An emergency fund is cash reserved for unexpected expenses or income loss.

  Look for: current balances on bank and other liquid savings statements.
• Credit report

  Review the accounts, payment history and errors in your credit files before a lender does. A credit report is the detailed record; a credit score is the number calculated from report information.

  Look for: balances, payment status, unfamiliar accounts and incorrect late payments.
• Property-specific costs

  Once you have an address, replace broad estimates with local taxes, an insurance quote, HOA dues and inspection findings.

  Look for: the listing, county records, insurer quote, HOA documents and seller disclosures.

Keep a margin for change. Taxes, insurance and HOA dues can rise. Repairs arrive on their own schedule. A price that works only when every estimate is perfect is probably too high.