How Much House Can I Afford? A Clear Guide

The number a lender approves and the number that is right for you are often very different. Here is how to find yours.

The most expensive home-buying mistake most people make happens before they ever make an offer: they let a lender define their budget. What a bank will approve and what you can comfortably afford are two very different numbers — and confusing them is how people end up house-poor, stretched thin by a mortgage that leaves no room for savings, repairs, or life changes. This guide shows you how to set your own number before a lender sets it for you.

These two numbers are often very different. This guide gives you the framework to find yours.

The 28/36 rule: a useful starting point

A widely used guideline in personal finance is the 28/36 rule:

• 28% — your total housing costs (mortgage P&I, taxes, insurance, HOA) should not exceed 28% of your gross monthly income
• 36% — your total debt payments (housing + car loans + student loans + credit cards) should not exceed 36% of gross income

These are guidelines, not hard rules. Many lenders will approve loans with higher ratios — up to 43% back-end DTI for conventional loans, or 50% for FHA. But staying within 28/36 gives you meaningful financial breathing room.

How to calculate your number

Step 1: Find your maximum monthly housing payment.

On a $8,000/month gross income: $8,000 × 0.28 = $2,240/month maximum

Step 2: Subtract non-mortgage housing costs from that maximum.

That $2,240 must cover principal and interest, property taxes, homeowners insurance, and PMI (if applicable). Estimated taxes and insurance might run $400–$600/month on a $400,000 home. That leaves roughly $1,640–$1,840 for principal and interest.

Step 3: Convert that P&I payment to a loan amount.

At 6.5% over 30 years, $1,750/month in P&I supports a loan of approximately $275,000.

Add your down payment to find your total purchase price: $275,000 loan + $55,000 down payment (20%) = $330,000 home price.

Income to home price: quick reference

These are estimates based on 6.5% rate, 20% down, and $400/month in taxes and insurance. Use the calculator below for your exact numbers.

Factors that lower what you can afford

• Existing debt payments — high car loans, student loans, or credit card minimums reduce what you can allocate to housing under the 36% total debt rule
• Down payment below 20% — adds PMI ($100–$400/month), reducing how much you can put toward principal and interest
• High property taxes — vary dramatically by location; some areas run 2–3% of home value annually
• HOA fees — $300–$600/month in many condos and planned communities
• Higher interest rates — every 1% increase in rate reduces your affordable loan amount by roughly 10%

Why lender approval is not the same as affordability

Lenders approve loans based on what they believe you can technically repay — not what gives you financial comfort. An approval at 43% DTI means nearly half your gross income goes to debt payments, leaving limited room for savings, emergencies, or life changes.

A reasonable stress test: could you still make the mortgage payment if you lost one income, had a major car repair, or faced an unexpected medical bill? If the answer is no without significant financial strain, you may be buying at the top of your range rather than within your comfort zone.

Buying a home you can genuinely afford — not just qualify for — is one of the best financial decisions you can make. The peace of mind that comes from a manageable payment is worth more than the extra square footage.

The costs beyond the mortgage payment

One of the most common mistakes first-time buyers make is comparing their rent to the mortgage principal and interest payment — and assuming if those numbers are similar, the affordability is the same. They are not.

Homeownership comes with a set of ongoing costs that renters do not pay:

• Property taxes — typically 0.5%–2% of the home's value per year, depending on location. On a $400,000 home, that is $2,000–$8,000 per year, or $167–$667 per month added to your effective payment.
• Homeowners insurance — typically $1,000–$2,000 per year for a standard policy, more in high-risk areas (flood zones, hurricane corridors).
• Private Mortgage Insurance (PMI) — required if your down payment is below 20%. Usually 0.5%–1.5% of the loan amount per year.
• HOA fees — in condos and planned communities, these can range from $100 to over $1,000 per month.
• Maintenance and repairs — a commonly used rule of thumb is to budget 1% of the home's value per year. On a $400,000 home, that is $4,000/year, or $333/month set aside for unexpected repairs.

Add these costs to your principal and interest payment to get your true monthly housing cost — and check that total against the 28% front-end DTI threshold, not just the mortgage payment alone.

How your down payment changes what you can afford

A larger down payment does not just lower your monthly payment — it lowers the loan amount, eliminates PMI sooner (or immediately), and improves the rate a lender offers you. Here is how the numbers play out on a $400,000 home at a 7% interest rate:

Questions to ask yourself before committing

Beyond the numbers, affordability is also about stability and flexibility. Before committing to a purchase price, ask yourself:

• Is my income likely to stay the same, grow, or could it drop in the next 2–3 years?
• Do I have 3–6 months of expenses in an emergency fund after the down payment?
• Am I planning any large life changes (career shift, family expansion) that could change my financial picture?
• If rates rise and I have an adjustable-rate mortgage, can I still afford the payment at a higher rate?

A lender's job is to determine if you can repay the loan under normal conditions. Your job is to determine if you can repay it comfortably — and still live your life — under a range of conditions.

Stress-testing your number

Whatever monthly payment you calculate as affordable, run it through two stress tests before committing. First: can you still make this payment if your household income drops by 20% — through a job loss, reduced hours, or a career change? Second: can you absorb a $500–$1,000 unexpected home repair in the same month without missing the payment? If both answers are yes, your affordability number is genuine. If either answer is no, the budget is too tight and you should either target a lower purchase price or build a larger financial cushion before buying.

Stress-testing your number

Whatever monthly payment you calculate as affordable, run it through two quick stress tests. First: can you still make this payment if your household income drops 20% — through job loss, reduced hours, or a career change? Second: can you absorb a $500–$1,000 unexpected repair in the same month without missing the mortgage payment? If both answers are yes, your affordability number is genuine. If either answer is no, the budget is too tight and you should target a lower purchase price or build a larger financial cushion before buying.

Frequently asked questions

What percentage of income should go to housing?
The standard guideline is 28% of gross monthly income for total housing costs (principal, interest, taxes, insurance, PMI). Your total debt payments including housing should stay under 36–43%.

Should I use gross or net income for affordability?
Lenders use gross income (pre-tax). For your own planning, running the numbers on net income gives a more conservative and often more realistic picture of what is genuinely comfortable.

Can I afford a house if I have student loans?
Yes — student loans are factored into your debt-to-income ratio. If your total monthly debts (including student loan payments plus proposed mortgage) stay under 43% of gross income, most lenders will approve.

The number lenders use vs the number you should use

Lenders calculate your maximum qualifying mortgage based on your income, debts, and credit profile — and they approve you for the most you can qualify for, not the most you should comfortably borrow. The lender's number represents the ceiling of what they are willing to risk. Your number should represent a payment you can make comfortably under a range of scenarios, not just the best-case scenario.

A practical approach: calculate the maximum payment your lender would approve, then ask yourself whether you could still make that payment if your household income dropped 20%. If yes, the approved amount may be appropriate. If no, step down to a payment you could manage under that scenario. The history of mortgage defaults is largely a history of borrowers who could afford the payment when everything went right, but not when anything went wrong.