How Much House Can I Afford

The 28/36 rule, explained

Lenders do not start with a home price. They start with your income, apply two percentage limits, and work backwards. The result is the largest payment they will approve, and the home price follows from it.

The 28% front-end limit. Your total housing payment, which is principal, interest, property tax, insurance and any HOA dues, should not exceed 28% of your gross monthly income.

The 36% back-end limit. All of your debt payments together, including the new mortgage, car loans, student loans, credit card minimums and any other installment debt, should not exceed 36% of gross monthly income.

The binding limit is whichever produces the smaller housing payment. A borrower with no other debt is limited by the 28% rule. A borrower carrying a large car payment hits the 36% rule first and can afford less house.

Those are the conventional limits. FHA loans allow a back-end ratio up to 43%, and some lenders go to 45% or 50% with compensating factors like a large cash reserve. Higher ratios mean a larger payment and less cushion when something goes wrong.

Worked example on a $90,000 income

Take a household earning $90,000 a year with $500 a month of car and card payments, $40,000 saved for a down payment, and a 6.5% rate on a 30-year loan. Property tax is 1.1% of the price and insurance is $1,800 a year.

The 28% rule binds here, because $2,100.00 is smaller than $2,200.00. The home price is $304,369, the loan is $264,369, and the payment is $2,100.00 a month, of which $1,670.99 is principal and interest.

Change one input and the answer moves. Raise the other debts to $900 a month and the back-end limit drops to $1,800, which becomes the binding rule and cuts the affordable price. Cut the rate to 6% and the same $2,100.00 payment supports a price about $12,000 higher, because more of the payment goes to principal and less to interest.

What changes the number most

Four inputs drive the answer, and they are not equally powerful.

Debt is the one people underestimate. Once the 36% rule is the binding limit, a $400 a month car payment reduces the housing budget by $400 and the affordable price by roughly $55,000 at a 6.5% rate. Paying off a car before applying for a mortgage is one of the few moves that raises buying power without any extra cash.

The down payment is the one people overestimate. Adding $10,000 of cash raises the affordable price by about $10,000, not by a multiple of it. The reason is that the payment constraint stays the same, and the extra cash reduces the loan directly. Where the down payment helps more is at the 20% line, because crossing it removes PMI and frees up part of the payment for principal and interest.

What you need at closing, not just monthly

The monthly payment is the number everyone watches, and the cash at closing is the one that stops deals. On the $304,369 price in the example, the full requirement looks like this.

Add the reserve and the household needs roughly $59,000 to $68,000 in the bank to close comfortably on a $304,369 home. Many lenders want to see two months of payments in reserve after closing, and a larger reserve helps with an approval at a higher debt ratio.

Closing costs cover the appraisal, title search and title insurance, lender origination and underwriting fees, recording fees, and prepaid property tax and insurance. Some are negotiable and some are not. The loan estimate lists them in three groups, and only the lender's own fees are fully under its control.

Why lenders approve less than this calculator

This tool applies the 28/36 rule to the numbers you enter. A lender applies the same rule to your credit report, your tax returns and your bank statements, and adds three tests of its own.

Credit score. A score below about 620 makes a conventional loan hard to place, and a score below 580 rules out most programs. A lower score also raises the rate, which lowers the affordable price.

Verified income. Self-employed borrowers, commission earners and anyone with irregular income get an average of two years of returns rather than the most recent strong year. That usually lowers the qualifying income.

Reserves and history. Lenders want to see the down payment sourced and seasoned, meaning it has been in your account for at least 60 days, and a documented history of paying rent and other debts on time.

The practical approach is to treat this calculator as a ceiling and aim below it. A household that qualifies for a $2,100 payment and buys at $1,800 keeps room for a rate rise at renewal, a repair bill or a month without income. The Consumer Financial Protection Bureau's mortgage answers explain how lenders assess debt-to-income ratios, the Department of Housing and Urban Development covers the buying process from pre-approval to closing, and the Federal Trade Commission sets out your rights on credit and loan applications. This page is an estimate for planning and not financial advice.