The Question Everyone Gets Wrong
"How much house can I afford?" is the most Googled question in real estate — and most people answer it wrong. They look at the maximum loan a bank will approve and assume that's their budget. It's not. The bank's number is the maximum they'll lend you, not the maximum you should borrow.
Banks will approve you for a mortgage that stretches your finances to the absolute limit. Their job is to lend money. Your job is to live comfortably after the payment clears. Those are two very different goals.
This guide shows you how to calculate a realistic, comfortable home budget — not the bank's theoretical maximum. Run your numbers through our Home Affordability Calculator as you read to see your exact figures.
The 28/36 Rule: The Foundation of Home Affordability
Financial experts use the 28/36 rule as the baseline for home affordability:
- 28% Rule: Your total monthly housing costs (mortgage principal, interest, property taxes, homeowner's insurance — known as PITI) should not exceed 28% of your gross monthly income.
- 36% Rule: Your total monthly debt payments (housing + car loans + student loans + credit cards + any other debt) should not exceed 36% of your gross monthly income.
How to Apply the 28/36 Rule
Step 1: Find your gross monthly income (before taxes).
- Annual salary $75,000 → gross monthly = $6,250
- Not sure about your after-tax income? Our Take-Home Pay Calculator shows the breakdown.
Step 2: Multiply by 0.28 for your max housing payment.
- $6,250 x 0.28 = $1,750/month max housing cost
Step 3: Multiply by 0.36 for your max total debt.
- $6,250 x 0.36 = $2,250/month max total debt (housing + all other payments)
Step 4: Subtract existing debts from the 36% number.
- If you have a $350 car payment and $200 student loan = $550 in existing debt
- $2,250 - $550 = $1,700 max housing payment (the 36% rule is more restrictive here)
Your actual max is the lower of the two numbers: $1,700/month in this case.
How Much House Can I Afford by Salary?
Here's what the 28/36 rule translates to in actual home prices at a 6.5% interest rate, 30-year fixed mortgage, with 10% down payment:
$40,000 Salary
| Metric | Amount |
|---|---|
| Gross monthly income | $3,333 |
| Max housing payment (28%) | $933 |
| Max home price (estimate) | $140,000 - $160,000 |
| Monthly PITI at $150K | ~$920 |
Reality check: At $40K, your options are limited in most metro areas. Consider FHA loans (3.5% down) or USDA loans (0% down in rural areas) to maximize purchasing power. Use our FHA Loan Calculator to see payments with lower down payment requirements.
$50,000 Salary
| Metric | Amount |
|---|---|
| Gross monthly income | $4,167 |
| Max housing payment (28%) | $1,167 |
| Max home price (estimate) | $180,000 - $210,000 |
| Monthly PITI at $200K | ~$1,150 |
$60,000 Salary
| Metric | Amount |
|---|---|
| Gross monthly income | $5,000 |
| Max housing payment (28%) | $1,400 |
| Max home price (estimate) | $220,000 - $260,000 |
| Monthly PITI at $250K | ~$1,380 |
$75,000 Salary
| Metric | Amount |
|---|---|
| Gross monthly income | $6,250 |
| Max housing payment (28%) | $1,750 |
| Max home price (estimate) | $280,000 - $330,000 |
| Monthly PITI at $300K | ~$1,700 |
Sweet spot: $75K is where the 28/36 rule starts working comfortably in many mid-tier US housing markets (Phoenix, Nashville, Raleigh, Columbus, San Antonio).
$100,000 Salary
| Metric | Amount |
|---|---|
| Gross monthly income | $8,333 |
| Max housing payment (28%) | $2,333 |
| Max home price (estimate) | $370,000 - $430,000 |
| Monthly PITI at $400K | ~$2,300 |
$150,000 Salary
| Metric | Amount |
|---|---|
| Gross monthly income | $12,500 |
| Max housing payment (28%) | $3,500 |
| Max home price (estimate) | $550,000 - $650,000 |
| Monthly PITI at $600K | ~$3,450 |
$200,000 Salary
| Metric | Amount |
|---|---|
| Gross monthly income | $16,667 |
| Max housing payment (28%) | $4,667 |
| Max home price (estimate) | $740,000 - $870,000 |
Note: At $200K+ income, the limiting factor shifts from the mortgage to the down payment. Saving 20% on an $800K home requires $160,000 — which takes years even at high incomes. Our Down Payment Calculator shows you how long it takes to save your target at different monthly savings rates.
These are estimates — your actual numbers depend on property taxes, insurance costs, HOA fees, and your specific interest rate. Plug your exact numbers into our Mortgage Calculator for a precise monthly payment.
The 6 Factors That Determine How Much House You Can Afford
1. Down Payment
Your down payment directly affects three things: loan amount, monthly payment, and whether you pay PMI.
| Down Payment | Loan Amount (on $300K home) | Monthly P&I (6.5%) | PMI? |
|---|---|---|---|
| 3.5% (FHA) | $289,500 | $1,830 | Yes (~$200/mo MIP) |
| 5% | $285,000 | $1,801 | Yes (~$150/mo) |
| 10% | $270,000 | $1,706 | Yes (~$115/mo) |
| 20% | $240,000 | $1,517 | No |
Putting 20% down saves you $100-$200/month in PMI — that's $1,200-$2,400/year. Over 5-7 years until you hit 20% equity, that's $6,000-$17,000 in extra costs. But waiting to save 20% while prices rise can cost you more. It's a trade-off.
Not sure how much to save? Our Down Payment Calculator shows what 3.5%, 5%, 10%, and 20% look like for any home price and how long it takes to get there.
2. Credit Score
Your credit score directly controls your interest rate — and small rate differences create massive cost differences:
| Credit Score | Typical Rate (2026) | Monthly Payment ($300K loan) | Total Interest (30 years) |
|---|---|---|---|
| 760+ (Excellent) | 6.25% | $1,847 | $365,000 |
| 700-759 (Good) | 6.50% | $1,896 | $382,500 |
| 660-699 (Fair) | 7.00% | $1,996 | $418,500 |
| 620-659 (Poor) | 7.50% | $2,098 | $455,200 |
| Below 620 | 8.00%+ or FHA only | $2,201+ | $492,400+ |
The difference between a 760 score and a 620 score on a $300K loan is $354/month and $127,000 in total interest over 30 years. Improving your credit score before buying is one of the highest-ROI financial moves you can make.
3. Debt-to-Income Ratio (DTI)
Your DTI is the percentage of your gross monthly income that goes to debt payments. Lenders use two DTI numbers:
- Front-end DTI: Housing costs only / gross income (the 28% rule)
- Back-end DTI: All debts / gross income (the 36% rule)
Most conventional lenders want back-end DTI under 36%. FHA allows up to 43%. Some lenders go as high as 50% with compensating factors (high savings, excellent credit).
Check yours before you apply with our DTI Calculator — it tells you whether your ratio is in the "approved," "borderline," or "needs work" range.
How to lower your DTI before buying:
- Pay off or pay down credit card balances
- Don't take on new car loans or financing
- Pay off small debts entirely (even $200/month freed up improves DTI significantly)
- Increase income (side gig, raise, overtime)
4. Interest Rates
Interest rates are the single biggest factor you can't control. Even a 0.5% difference changes your buying power significantly:
| Rate | Monthly P&I ($300K loan) | Max Home Price (at $1,700 budget) |
|---|---|---|
| 5.5% | $1,703 | $300,000 |
| 6.0% | $1,799 | $284,000 |
| 6.5% | $1,896 | $269,000 |
| 7.0% | $1,996 | $255,000 |
| 7.5% | $2,098 | $243,000 |
A 2% rate increase (5.5% to 7.5%) reduces your buying power by $57,000 — nearly 20%. This is why rate-shopping across multiple lenders matters.
See the full impact of different rates on your loan with our Amortization Calculator — it shows exactly how much goes to interest vs principal at every payment.
5. Property Taxes
Property taxes vary wildly by location and dramatically affect affordability:
| State/Area | Effective Tax Rate | Annual Tax on $300K Home | Monthly Impact |
|---|---|---|---|
| New Jersey | 2.21% | $6,630 | $553 |
| Illinois | 2.07% | $6,210 | $518 |
| Texas | 1.68% | $5,040 | $420 |
| California | 0.71% | $2,130 | $178 |
| Hawaii | 0.27% | $810 | $68 |
A home in New Jersey at $300K costs $485/month more in property taxes than the same-priced home in Hawaii. This can swing your affordable price range by $50,000-$80,000 depending on where you buy.
6. Homeowners Insurance
Budget $100-$400/month depending on location, home value, and coverage. High-risk areas (flood zones, wildfire zones, hurricane regions) can be significantly more. This is often the forgotten cost that surprises first-time buyers.
The Hidden Costs Most Buyers Forget
Closing Costs: 2-5% of Home Price
Closing costs include lender fees, title insurance, appraisal, property taxes (prepaid), homeowner's insurance (prepaid), and miscellaneous charges. On a $300K home, expect $6,000-$15,000 at closing in addition to your down payment.
Maintenance: Budget 1-2% of Home Value Per Year
A $300K home needs $3,000-$6,000/year ($250-$500/month) for ongoing maintenance. New homes need less; older homes need more. Major items that hit eventually:
- Roof replacement: $8,000-$15,000 (every 20-30 years)
- HVAC replacement: $5,000-$10,000 (every 15-20 years)
- Water heater: $1,500-$3,000 (every 10-15 years)
- Appliance replacements: $500-$2,000 each
Moving Costs: $2,000-$5,000
Professional movers, truck rental, packing supplies, utility transfers, address changes, new furniture/items.
Immediate Post-Move Expenses: $2,000-$10,000
Things the previous owner had that you don't: lawn mower, snow blower, curtains, shower rods, garage organizer, basic tools. Plus anything you want to change immediately (paint, minor repairs, landscaping).
What Most Homebuyers Get Wrong
Mistake #1: Using the Bank's Maximum
If the bank approves you for $400K, do NOT buy a $400K house. Banks approve based on the maximum they believe you can repay — not what leaves you comfortable. Buy at 75-85% of your approved amount.
Mistake #2: Forgetting About Lifestyle
A $2,500/month mortgage on a $75K salary is technically within the 28% rule — but after taxes, retirement savings, and essential expenses, you may have very little left for anything else. Use our Budget Calculator to see what your monthly budget looks like AFTER the mortgage payment.
Mistake #3: Not Accounting for Income Changes
Will your income grow? Will it stay the same? If you're early in your career with strong growth prospects, stretching slightly is reasonable. If your income is at its ceiling, buy conservatively.
Mistake #4: Ignoring Opportunity Cost
Your down payment could be invested instead. $60,000 invested at 7% annual return grows to $118,000 in 10 years. That's the opportunity cost of tying that money up in a down payment. Homeownership builds equity too, but at a slower, less predictable rate in many markets.
Use our Compound Interest Calculator to see what your down payment would grow to if invested instead — then compare to expected home appreciation.
Mistake #5: Skipping the Pre-Approval
Getting pre-approved BEFORE house hunting:
- Gives you a realistic budget
- Shows sellers you're a serious buyer
- Identifies credit issues you can fix
- Locks in a rate (usually for 60-90 days)
The Conservative Approach: The 25% Rule
Many financial advisors (including Dave Ramsey) recommend an even more conservative approach: keep your mortgage payment at 25% of take-home pay (not gross pay). This is more restrictive than the 28/36 rule but leaves more room for savings, retirement, and lifestyle.
| Gross Salary | Take-Home (estimate) | 25% of Take-Home | Max Mortgage Payment |
|---|---|---|---|
| $50,000 | ~$3,400/month | $850 | $850/month |
| $75,000 | ~$4,700/month | $1,175 | $1,175/month |
| $100,000 | ~$6,000/month | $1,500 | $1,500/month |
| $150,000 | ~$8,500/month | $2,125 | $2,125/month |
Not sure what your take-home actually is? It varies significantly by state (no state tax in TX, FL, WA vs. 13.3% in CA). Use our Take-Home Pay Calculator to see your exact number in your state.
Special Loan Programs That Expand Your Budget
FHA Loans (Federal Housing Administration)
- Down payment: 3.5% (with 580+ credit score)
- Credit requirement: 580+ for 3.5% down, 500-579 for 10% down
- DTI limit: Up to 43% (sometimes higher)
- Best for: First-time buyers with limited savings
Calculate your FHA payment with our FHA Loan Calculator.
VA Loans (Veterans Affairs)
- Down payment: 0% (no down payment required)
- Credit requirement: No official minimum (most lenders want 620+)
- DTI limit: No official limit (most lenders cap at 41%)
- Best for: Active military, veterans, eligible spouses
See your VA payment with our VA Mortgage Calculator.
USDA Loans
- Down payment: 0% (rural and suburban areas)
- Income limit: Must be below 115% of area median income
- Best for: Buyers in eligible rural/suburban areas
Conventional 97
- Down payment: 3% (first-time buyers only)
- Credit requirement: 620+
- Best for: First-time buyers with good credit but limited cash
First-Time Homebuyer Checklist
Before you start looking at homes:
How to Increase How Much House You Can Afford
If the numbers aren't where you want them:
Short-term (1-3 months):
- Pay off credit card balances to lower DTI
- Don't open new credit accounts
- Correct credit report errors (can boost score 20-50 points)
Medium-term (3-12 months):
- Save a larger down payment (every $10K reduces your loan and monthly payment)
- Ask for a raise — use our Salary Increment Calculator to see how even a 5% raise changes your home budget
- Pick up a side income to boost your DTI profile
Long-term (1-2 years):
- Build credit score from 680 to 760+ (saves 0.5-1% on rate = $50K-$100K over life of loan)
- Save 20% down payment to eliminate PMI
- Pay off car loans or student loans to drastically improve DTI
The Bottom Line
The right home budget is one where you can comfortably make your payment, save for retirement, build an emergency fund, and still enjoy your life. If making the mortgage payment means cutting retirement contributions or living paycheck to paycheck, the house is too expensive — regardless of what the bank approved.
Start with the 28/36 rule, adjust for your personal situation, and always buy below your maximum. Use our Home Affordability Calculator to find your number, then our Mortgage Calculator to see the exact monthly payment before you start shopping.
The best home purchase is one you never stress about paying for.