How Much House Can I Afford? Let's Do the Real Math
Every home buyer asks this question, and the internet is full of vague answers like "it depends on your situation." Thanks, super helpful. Let's actually break down the numbers — with the specific rules lenders use, real income examples, and all the hidden costs that could blow up your budget if you're not prepared.
The 28/36 rule is the gold standard that lenders use to determine what you can afford. It's simple, but most people either haven't heard of it or don't apply it correctly. Here's how it works and why it matters more than whatever Zillow says you can afford.
The 28/36 Rule Explained
The rule has two parts:
- 28% rule: Your total monthly housing costs (mortgage payment, property taxes, homeowner's insurance, HOA fees) should not exceed 28% of your gross monthly income.
- 36% rule: Your total debt payments — housing costs PLUS car loans, student loans, credit card minimums, and any other debt — should not exceed 36% of your gross monthly income.
Let's say you earn $80,000 per year. That's $6,667 per month gross. Under the 28/36 rule:
- Max housing payment: $6,667 × 0.28 = $1,867/month
- Max total debt: $6,667 × 0.36 = $2,400/month
- If you have a $400 car payment and $200 in student loans, your max housing payment drops to: $2,400 − $600 = $1,800/month
Notice how existing debt reduces what you can spend on housing. This is why paying off debt before buying a home can dramatically increase your purchasing power.
Income vs. Max Home Price (2026 Rates)
| Annual Income | Max Home Price at 6.0% | Max Home Price at 6.5% | Max Home Price at 7.0% |
|---|---|---|---|
| $50,000 | $215,000 | $205,000 | $195,000 |
| $75,000 | $320,000 | $305,000 | $290,000 |
| $100,000 | $430,000 | $410,000 | $390,000 |
| $125,000 | $535,000 | $510,000 | $485,000 |
| $150,000 | $645,000 | $615,000 | $585,000 |
| $200,000 | $860,000 | $820,000 | $780,000 |
Assumptions: 20% down payment, 30-year fixed rate, no other debt, property taxes at 1.1%, insurance at $1,500/year, no HOA. Your actual numbers will vary.
Understanding DTI: The Number Lenders Really Care About
Your debt-to-income ratio (DTI) is the single most important number in your mortgage application after your credit score. It's calculated as your total monthly debt payments divided by your gross monthly income.
Here's where it gets interesting: while the 28/36 rule is the conservative standard, many lenders will approve loans with higher DTI ratios:
- Conventional loans: Up to 45% DTI (some go to 50% with strong credit)
- FHA loans: Up to 50% DTI
- VA loans: No hard DTI limit, but 41% is the guideline
Just because a lender will approve you at 50% DTI doesn't mean you should take it. Being "house poor" — where your mortgage eats so much of your income that you can't save, invest, or enjoy life — is a real trap. The 28/36 rule exists for a reason: it leaves room for everything else in your budget.
The Hidden Costs Beyond Your Mortgage Payment
Your mortgage payment is just the beginning. Here are the costs that catch first-time buyers off guard:
Property Taxes
The national average is about 1.1% of home value per year, but this varies wildly by state. In New Jersey, the average effective rate is 2.23% — so a $400,000 home costs $8,920/year in property taxes alone. In Hawaii, it's just 0.32%, or $1,280/year. That's a difference of $7,640 per year for the same priced home. Always check the specific tax rate for any home you're considering.
Homeowner's Insurance
National average: $1,500–$2,500/year. But if you're in a hurricane zone (Florida, Gulf Coast), earthquake zone (California), or wildfire zone, premiums can easily hit $3,000–$6,000+. Florida homeowners are paying an average of $4,200/year in 2026 — and that's if you can get coverage at all.
HOA Fees
If you're buying a condo, townhouse, or home in a planned community, HOA fees typically run $200–$600/month. Luxury condos in major cities can charge $1,000+/month. These fees are often excluded from mortgage affordability calculators, but they absolutely affect your monthly budget.
Maintenance and Repairs
The general rule: budget 1–2% of your home's value per year for maintenance. On a $400,000 home, that's $4,000–$8,000 annually. New roof? $8,000–$15,000. HVAC replacement? $5,000–$10,000. Water heater? $1,000–$3,000. These aren't if expenses — they're when expenses.
PMI (Private Mortgage Insurance)
If your down payment is less than 20%, you'll pay PMI — typically 0.5–1.5% of the loan amount per year. On a $350,000 loan, that's $1,750–$5,250/year, or $146–$437/month added to your payment. PMI drops off once you reach 20% equity, but it's a significant cost in the early years.
How Down Payment Affects What You Can Afford
The down payment is the biggest lever you can pull to affect affordability:
- 20% down: No PMI, lowest monthly payment, best rates. But coming up with $80,000 on a $400,000 home is a tall order.
- 10% down: PMI required, but you keep more cash reserves. Monthly payment on a $400,000 home is about $150–$200 higher than with 20% down.
- 3.5% down (FHA): Great for first-time buyers, but PMI is required for the life of the loan (unless you refinance into a conventional loan later).
- 0% down (VA/USDA): Available to eligible veterans and rural buyers. No PMI on VA loans, though there's a one-time funding fee.
Run your specific numbers through our mortgage calculator to see exactly how different down payments change your monthly obligation. And if you want a quick answer to the big question, our home affordability calculator factors in income, debt, down payment, and local taxes to give you a realistic maximum purchase price.
The Bottom Line: What You Can Afford vs. What You Should Spend
Here's the most important piece of advice in this entire guide: buy less house than you're approved for. Lenders approve you based on the maximum they think you can technically pay. But "technically can pay" and "comfortably can pay" are very different things. A mortgage that leaves room for retirement savings, emergency funds, vacations, and the occasional unexpected $5,000 repair bill is a mortgage you'll never regret.
The sweet spot for most people is keeping housing costs at 25% or less of gross income — even more conservative than the 28% guideline. It might mean a smaller house or a longer commute, but financial breathing room is worth more than a bigger kitchen.