How Much House Can I Afford? The 28/36 Rule Explained

"How much house can I afford?" is the first question every homebuyer should answer — and one that's easy to answer wrongly by trusting a lender's pre-approval number. Lenders will approve you for as much as their guidelines allow, which is not the same as what's comfortable for your actual lifestyle, savings goals, and financial resilience. This guide explains the standard rules, how to calculate your own number, and what the mortgage payment hides.

The 28/36 rule

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

• Front-end ratio (28%): Your monthly mortgage payment — principal, interest, property taxes, and insurance (PITI) — should not exceed 28% of your gross monthly income.
• Back-end ratio (36%): All monthly debt obligations combined — mortgage, car loans, student loans, credit card minimums — should not exceed 36% of gross monthly income.

These are conservative guidelines. Conventional mortgages allow back-end DTI up to 45%, and FHA loans allow up to 50% in some cases. Lenders use 36% as a comfortable threshold; getting close to 50% is a warning sign that you're house-rich and cash-poor.

Working out your numbers

Example: $90,000 gross annual income, $400/month existing debt

• Gross monthly income: $90,000 ÷ 12 = $7,500
• Maximum mortgage payment (28%): $7,500 × 0.28 = $2,100/month
• Maximum all-debt payment (36%): $7,500 × 0.36 = $2,700/month
• Existing debt: $400/month (car payment)
• Maximum mortgage within back-end limit: $2,700 − $400 = $2,300/month
• Binding constraint: $2,100/month (front-end is lower)

At 6.8% for 30 years, a $2,100 monthly payment corresponds to a loan of approximately $322,000. Add a 10% down payment: maximum home price ≈ $358,000. Add 20% down: maximum home price ≈ $402,000.

From monthly payment to home price

The reverse calculation — converting a target monthly payment to a loan amount — uses the present value of annuity formula. For most buyers, it's easier to just use a mortgage calculator and adjust. But the directional rule of thumb at current rates (~6.8%, 30yr) is:

Every $100,000 of loan costs approximately $653/month in P&I at 6.8%.

So if your maximum P&I budget (after property tax and insurance) is $1,800/month, your loan ceiling is approximately $1,800 ÷ 6.53 × 1,000 ≈ $276,000 in loan principal.

At rates of 5%, that same $1,800/month supports about $335,000 in loan balance. Rate changes have an enormous impact on affordability — a 2-percentage-point rate move changes purchasing power by roughly 20%.

What lenders actually look at

Pre-approval doesn't just require an income figure — lenders analyse five factors:

1. Income and employment

Lenders want 2 years of stable employment and verifiable income (W-2s, tax returns, or bank statements for self-employed applicants). Freelancers and contractors with variable income are often underwritten at their 2-year average — the lender won't take your best year if it's an outlier.

2. Credit score

A higher credit score unlocks lower interest rates — often more impactful than the down payment. Rough rate tiers by FICO score for a conventional 30-year loan:

• 760+ → best rates (roughly 6.3%–6.6% in mid-2026)
• 700–759 → moderate premium (+0.25%–0.5%)
• 640–699 → meaningful premium (+0.5%–1.0%)
• Below 640 → FHA or subprime territory; rates rise sharply

Improving your credit score from 680 to 750 before applying could save $40,000–$70,000 in total interest on a $300,000 loan over 30 years.

3. Down payment

The down payment affects three things simultaneously: the loan size, whether PMI is required, and your loan's interest rate (larger down payments often earn slightly better pricing). A 20% down payment eliminates PMI, reducing monthly costs by $150–$250+ on most mid-range homes.

4. Assets and reserves

Most lenders require 2–6 months of mortgage payments in liquid reserves after closing. If your down payment wipes out your savings, that's a red flag — not just for lenders, but for you. A broken furnace or unexpected job loss without an emergency fund while carrying a large mortgage is a genuine financial risk.

5. Debt-to-income ratio

Even with a high income, significant existing debt — student loans, car payments, personal loans — directly reduces how much house you can qualify for. Paying down a $500/month car loan before applying can add $70,000–$80,000 to your maximum home price at current rates.

The hidden costs of homeownership

The mortgage payment is just the beginning. First-time buyers consistently underestimate the total cost of ownership:

Property taxes

National average: approximately 1.1% of assessed value per year, paid monthly into escrow. But this varies widely: New Jersey averages 2.2%, Hawaii averages 0.3%. On a $400,000 home, property taxes could add $200–$730/month to your payment depending on location.

Homeowner's insurance

Typically $100–$200/month for a median-priced home, but significantly higher in coastal areas, flood zones, or high-risk regions. Some areas of Florida and Louisiana are seeing insurance unavailability and spikes to $3,000–$5,000+/year.

PMI (if < 20% down)

Adds $150–$300/month on a $350,000 loan until you reach 78–80% LTV, typically 7–11 years. See our What Is PMI? guide for full detail.

Maintenance and repairs

The common rule of thumb: budget 1%–2% of home value per year for maintenance. On a $400,000 home: $4,000–$8,000/year ($333–$667/month). This is highly variable — a 40-year-old home may need a new roof, HVAC, and windows in the first decade; a new-build may need very little. But over any 10-year period, the average is hard to escape.

HOA fees

Condos and many planned communities charge monthly HOA fees ranging from $100 to $1,000+/month. Unlike a mortgage, these can increase and do not build equity.

Utilities

Homeowner utility bills are typically 40–60% higher than renting equivalent space: you pay for the larger footprint, older appliances, and in many cases, heating/cooling for space that was previously someone else's responsibility (garage, basement, attic).

A more realistic affordability framework

Rather than targeting "the maximum I can qualify for," consider this hierarchy:

1. PITI ≤ 25% of gross monthly income. More conservative than the 28% rule, leaves comfortable breathing room.
2. Total ownership cost ≤ 35% of gross income. Total housing cost (PITI + PMI + maintenance allowance + HOA) should not crowd out all other savings and lifestyle spending.
3. Down payment + closing costs don't drain reserves. Closing costs run 2%–5% of the loan. Budget these separately and keep 3–6 months of PITI in liquid savings after closing.
4. The payment is comfortable at current income. Don't buy assuming a raise. Buy what works on today's income, and let rising income give you optionality rather than necessity.

The bottom line

The 28/36 rule and lender pre-approvals tell you the ceiling. Your actual affordable number depends on property taxes, insurance, maintenance, PMI, and the other financial goals you're not willing to sacrifice — retirement savings, emergency fund, travel, childcare. The right house is the one that lets you sleep soundly knowing the mortgage is covered, not the most expensive one your lender will approve.