"How much house can I afford?" has two different answers. One is what a lender will approve you for. The other — the one that matters for your life — is what you can pay comfortably without giving up everything else. This guide covers both.
Start with gross monthly income
Affordability rules are built on gross (pre-tax) monthly income. If you are salaried, divide your annual pay by 12. If your income varies, average the last 24 months and use the steadier figure. Lenders prefer stable or rising income over a one-time spike.
The 28/36 guideline
Lenders use debt-to-income (DTI) ratios to cap how much of your income can go to housing and other debts. The classic guideline says:
- Front-end DTI: your total monthly housing payment should be at or below 28% of gross monthly income.
- Back-end DTI: your housing payment plus all other debt payments should be at or below 36% of gross monthly income.
On $7,500 of gross monthly income, the 28% front-end cap is $2,100. That $2,100 must cover everything housing-related — principal, interest, property taxes, insurance, PMI, and HOA — not just the loan payment.
Turning a monthly budget into a price
Once you know your maximum monthly housing budget, you work backwards to a home price. The catch is that taxes, insurance, and PMI scale with the home, so you cannot just plug a price into a loan formula. A simplified approach:
- Pick your monthly housing budget (the 28% figure, or lower).
- Subtract estimated property taxes (roughly 1% of price per year ÷ 12) and insurance.
- If you put less than 20% down, subtract PMI.
- What remains is your principal-and-interest budget.
- Use the payment formula with your rate and term to find the loan amount that payment supports.
- Add your down payment back to get the home price.
Our Affordability calculator does this iteration automatically and lets you adjust the DTI targets so you can see how each assumption moves the price.
The costs everyone forgets
A home price is not the same as the cash you need on day one. Two categories get overlooked constantly:
Closing costs
Closing costs typically run 2–5% of the purchase price, paid in cash at signing, on top of the down payment. On a $350,000 home that is $7,000–$17,500 in lender fees, appraisal, title insurance, recording fees, and prepaid taxes and insurance.
Reserves and the move-in budget
Lenders may want to see 2–6 months of housing payments in reserves. Beyond that, set aside a move-in and repair fund. A common rule of thumb is to budget 1–2% of the home value per year for maintenance once you own it.
A saner way to set your number
Instead of asking "what is the most I can borrow?", work backwards from the life you want to keep. Write down your take-home pay and current spending, decide how much surplus you will commit to housing, subtract a 10–15% buffer for rising taxes and insurance, and run that adjusted number through the Affordability calculator. This usually lands 10–20% below the lender maximum — and that gap is the room that keeps a job change or repair from becoming a crisis.
Open the Affordability Calculator