How Much House Can You Afford?

There are two very different questions hiding inside "how much house can I afford?" The first is how much will a lender give me? The second is how much should I actually borrow? They almost never have the same answer, and the gap between them is where a lot of stressful, house-poor years begin. This guide walks through both — the math lenders use and the sanity checks you should run on yourself — so you can set a target price before you ever fall in love with a listing.

The number lenders care about: your debt-to-income ratio

Lenders don't really lend against your salary. They lend against your debt-to-income ratio (DTI) — the share of your gross monthly income that goes toward debt payments. There are two versions, and the classic guideline is called the 28/36 rule:

• Front-end DTI (28%): your total housing payment shouldn't exceed about 28% of gross monthly income.
• Back-end DTI (36%): all your debt payments combined — housing plus car loans, student loans, credit-card minimums — shouldn't exceed about 36%.

"Housing payment" here means the full PITI: principal, interest, property taxes and homeowner's insurance, plus PMI and any HOA dues. People forget that taxes and insurance can add hundreds of dollars a month on top of principal and interest, which is exactly why our mortgage calculator breaks them out separately.

A quick example. Say you earn $7,000 a month gross:

• 28% of $7,000 = $1,960 for housing.
• 36% of $7,000 = $2,520 for all debt. If you already pay $500 on a car and student loans, that leaves $2,020 for housing — so the back-end limit is actually looser than the front-end one here, and $1,960 governs.

Many loan programs stretch beyond 36%. Conventional loans routinely approve back-end DTIs up to 45%, and FHA loans sometimes higher with strong "compensating factors" like cash reserves or a high credit score. That flexibility is a double-edged sword: just because you can be approved at 45% doesn't mean a payment that large will feel comfortable when the water heater dies.

Working backward from a comfortable payment

Instead of starting with a home price, start with a monthly payment you'd be genuinely happy to make, then work backward to a price. This is the single most useful habit in home shopping.

Pick a payment — say $1,960. Subtract your estimated taxes, insurance, and any HOA. If those run $450 a month, you have about $1,510 left for principal and interest. At a 6.5% rate on a 30-year term, $1,510 a month supports roughly a $239,000 loan. Add your down payment, and that's your price ceiling.

You don't have to do this arithmetic by hand. Open the calculator, type a home price and your down payment, switch on the advanced fields for taxes and insurance, and nudge the price until the monthly number lands where you want it. Then check the amortization schedule to see how much of that payment is actually building equity versus going to interest in the early years — in year one it's mostly interest, which surprises a lot of first-time buyers (we cover why in how amortization works).

The four levers that move your budget

Four inputs decide how much home a given payment buys. Understanding which ones you control is what separates anxious shoppers from confident ones.

1. Down payment

A bigger down payment lowers the loan, which lowers the payment, and crossing 20% down removes PMI entirely on a conventional loan. But draining every dollar of savings to hit 20% can leave you without an emergency fund — a worse risk than paying PMI for a few years. We break down the trade-off in how much down payment you really need.

2. Interest rate

Rates move your budget more than almost anything else. On a $300,000 loan, the difference between 6.0% and 7.0% is about $190 a month — roughly $68,000 over the life of the loan. Shop at least three lenders, and check the current 30-year and 15-year fixed rates before you assume a number. Rates also vary by state; you can see rates where you're buying too.

3. Loan term

A 30-year loan has a lower monthly payment but costs far more interest overall; a 15-year loan flips that. If your goal is the biggest house, the 30-year stretches your budget. If your goal is the least total cost, the 15-year wins. See 15- vs 30-year for the full comparison.

4. Taxes, insurance, and HOA

These vary wildly by location and are easy to underestimate. A $400,000 home in a low-tax county might carry $300 a month in taxes; the same home in a high-tax area could be double that. Two homes at the same price can have very different true costs once you add it all up — always run the specific property, not a generic estimate.

The expenses the 28/36 rule ignores

Approval math looks at debt, not at life. Before you anchor on a maximum, account for the costs lenders never see:

• Maintenance: budget roughly 1% of the home's value per year. On a $400,000 home that's about $4,000 annually, or $333 a month, even in a quiet year.
• Utilities and commuting: a bigger or farther-out home can quietly add hundreds a month.
• Furnishing and moving: a new, larger space rarely stays empty.
• Your other goals: retirement contributions, childcare, travel, and an emergency fund all compete for the same dollars.

A useful gut check: could you still hit your savings goals and absorb a surprise $2,000 expense at the payment you're considering? If the honest answer is "only if nothing goes wrong," the payment is too high.

A simple framework to land on your number

Put it together in four steps:

1. Calculate your ceiling. Use the 28/36 rule on your gross income to find the maximum housing payment a lender will likely allow.
2. Set your comfort payment. Independently, decide the monthly number you'd be happy paying while still funding your other goals. This is usually below the ceiling.
3. Convert payment to price. In the calculator, adjust the home price (with realistic taxes and insurance) until the payment matches your comfort number. That price — plus your down payment — is your real budget.
4. Stress-test it. Re-run with a rate half a point higher and with PMI included if you're under 20% down. If it still works, you have room to breathe.

The bottom line

The maximum a lender approves is a limit, not a target. The buyers who feel good about their mortgage five years in are almost always the ones who borrowed comfortably below their ceiling, kept an emergency fund intact, and knew their full PITI payment — not just the listing price — before they made an offer. Start from a payment you can live with, work backward to a price, and let the mortgage calculator do the arithmetic. It's the cheapest insurance you'll ever buy against an uncomfortable decade.