How Much House Can I Afford?
Your income sets a budget, but your debts, down payment, and interest rate decide the actual price tag — here is how they fit together.
Start with the payment, not the price
When people ask "how much house can I afford?" they usually picture a price tag. Lenders think differently. They start with the monthly payment you can comfortably carry, then work backwards to a price. That flip is the single most useful thing to understand, because it explains why two people with the same salary can be approved for very different homes.
The payment a lender cares about is not just the loan. It is the full housing cost: principal, interest, property taxes, and homeowner's insurance — often shortened to PITI. If your area or loan adds mortgage insurance or HOA dues, those count too. So affordability is really a question of how much PITI your income can absorb, and how big a loan that payment buys at today's rate.
The 28/36 rule in plain English
Most lenders lean on two ratios, together known as the 28/36 rule:
- 28% — the front-end ratio. Your total housing payment (PITI) should stay under 28% of your gross monthly income.
- 36% — the back-end ratio. Your housing payment plus all other debt — car loans, student loans, minimum credit-card payments — should stay under 36% of gross monthly income.
The back-end ratio is the one that surprises people. A 400-a-month car payment doesn't just cost you 400; it shrinks the mortgage payment you qualify for by the same amount. This is the debt-to-income (DTI) limit, and it is usually the real ceiling on your budget.
A worked example
Let's make it concrete. Say your household earns 6,000 per month gross, you have 400 in other monthly debt payments, and you've saved a down payment. Today's rate is 6% on a 30-year loan.
Step 1 — Find your housing budget from both ratios.
| Rule | Calculation | Allowed housing payment |
|---|---|---|
| 28% front-end | 6,000 × 0.28 | 1,680 |
| 36% back-end | 6,000 × 0.36 − 400 | 1,760 |
The lower number wins, so your safe housing payment is about 1,680 per month. The back-end rule would have allowed slightly more, but the 28% cap is tighter here.
Step 2 — Carve out taxes and insurance. PITI includes them, so they don't all go to the loan. Assume taxes and insurance run about 280 per month. That leaves 1,400 for principal and interest.
Step 3 — Convert payment to loan size. At 6% over 30 years, every 1,000 of payment supports roughly 166,800 of loan. So 1,400 buys about 1,400 × 166.8 = 233,500 in mortgage.
Step 4 — Add your down payment. If you've saved 45,000, your target price is the loan plus the down payment:
233,500 + 45,000 = about 278,000.
That's your honest number — not a dream figure, but a price where the payment fits inside both ratios with taxes and insurance baked in. An affordability calculator runs these exact steps and lets you flex the inputs in seconds.
How each lever moves the number
Affordability isn't one fixed figure — it shifts with four levers:
- Income. More gross income lifts both ratio ceilings directly.
- Other debt. Every 100 of monthly debt you clear adds roughly 100 back to your housing budget and can lift your loan by 15,000–17,000.
- Interest rate. Rates are brutal on affordability. At 6%, 1,400 buys ~233,500. At 7%, that same payment buys only about 210,500 — a 23,000 drop for one percentage point. Model this with a mortgage calculator before you commit.
- Down payment. Cash down adds to the price one-for-one and, past the 20% mark, can drop mortgage insurance — see how your down payment affects your mortgage.
Don't borrow the maximum
Qualifying for a payment and being comfortable with it are different things. The 28/36 rule is a lender's risk limit, not a budget that accounts for your life — childcare, savings goals, a car that will eventually die, or simply wanting to breathe. Many people deliberately aim for a payment nearer 25% of income so a bad month doesn't become a crisis.
A useful gut check: take the payment the calculator gives you and pretend you've been paying it for three months. Does the rest of your budget still work? If yes, the number is real. If it only works on a perfect month, step the price down.
Takeaways
- Lenders start from a comfortable monthly payment, then work back to a price.
- The 28/36 rule caps housing at 28% of income and all debt at 36% — the lower one wins.
- Taxes and insurance are part of the payment, so they shrink the loan portion.
- Rate and existing debt move your budget more than most people expect.
- Qualifying for the maximum isn't the same as being able to live with it.
Try the calculators
Keep reading
- How Your Down Payment Affects Your Mortgage
A bigger down payment does four things at once — it cuts your loan, lowers your rate risk, can erase mortgage insurance, and shrinks the interest you pay for decades.
- How Loan Amortization Works (With a Worked Example)
See exactly how each loan payment splits between interest and principal — and when you finally start building real equity.
David writes about borrowing without the jargon, after years of helping friends and family decode loan paperwork. He believes everyone deserves to understand what they’re signing.