How Much House Can I Afford? Complete Guide
The answer isn't just your savings — it's a formula based on your income, debts, and down payment. Here's how lenders think, and how to calculate your own number.
The 28/36 rule
Lenders use a common guideline called the 28/36 rule:
- 28% — your monthly housing costs (mortgage, taxes, insurance) should not exceed 28% of gross monthly income
- 36% — your total monthly debt (housing + car loans + credit cards) should not exceed 36% of gross income
Example: if your household earns $6,000/month before tax, aim for housing under $1,680 (28%) and total debt under $2,160 (36%).
What is debt-to-income ratio (DTI)?
DTI is your total monthly debt payments divided by gross monthly income, expressed as a percentage. Most lenders prefer a DTI below 43%. The lower your DTI, the better rate you'll qualify for.
The down payment factor
Your down payment determines how much you borrow and whether you pay PMI (private mortgage insurance). Common tiers:
- 3.5% — minimum for FHA loans
- 5-10% — conventional with PMI
- 20% — conventional with no PMI
A larger down payment lowers your monthly payment and total interest, but keep cash for closing costs and an emergency fund.
Run your own numbers
Plug the home price, interest rate, and term into our free loan calculator to see the monthly payment. Then check it against your 28% number. If it's too high, adjust the price down or increase the down payment until it fits.