How Much House Can I Afford?
Use proven rules of thumb like the 28/36 rule, debt-to-income ratios, and a full monthly budget to figure out a safe home price.
The amount a lender will approve and the amount you can comfortably afford are two different numbers. Lenders focus on whether you are likely to repay; you need to think about whether you can also save, travel, handle emergencies, and sleep at night. Here is how to find a home price that works for your life.
The 28/36 rule
A traditional guideline says your housing costs (principal, interest, taxes, insurance, and HOA) should be no more than 28% of your gross monthly income, and your total debt payments, including housing, should be no more than 36%. For example, with a gross household income of $100,000 per year ($8,333 per month), the guideline suggests a housing payment up to about $2,333 and total debts up to about $3,000. Many lenders will approve higher ratios, especially for borrowers with strong credit and reserves, but those limits are a ceiling, not a target.
Start from the payment, not the price
Decide what monthly payment you are comfortable with, then work backward. Subtract estimated property taxes, insurance, mortgage insurance, and HOA dues to find how much principal and interest you can afford, then use a mortgage calculator to convert that to a loan amount at current rates. Add your down payment to estimate your price range.
Why interest rates matter so much
Because the rate applies to a large balance over decades, small changes have big effects. On a $300,000, 30-year fixed loan, the principal-and-interest payment is roughly $1,996 at 7% and about $1,799 at 6%, a difference of nearly $200 a month, or more than $70,000 over the full term. When rates are high, the same budget buys less house.
Costs buyers forget
- Maintenance and repairs: commonly 1% to 2% of the home's value per year, more for older homes.
- Utilities: a larger house usually means larger bills.
- Insurance increases: premiums have risen sharply in some regions prone to storms, wildfire, or flooding. Get quotes before you buy.
- Property tax reassessment: taxes may jump after purchase if your area reassesses at the sale price.
- Furniture, window coverings, and moving costs.
Protect your cushion
After closing, aim to keep an emergency fund of several months of expenses. Being "house poor," with most income going to the home and nothing left for savings, is one of the most common regrets of new owners.
A simple affordability checklist
- Total housing payment is a number you could still make if your income dipped for a few months.
- You can keep contributing to retirement savings.
- You have money left for repairs in year one.
- You have priced insurance and taxes for the specific home.
- You would still be comfortable if rates do not fall soon enough to refinance.
This article is for general educational purposes and is not financial, legal, or tax advice. See our disclaimer.