How Much House Can I Afford?
The 28/36 rule, the payment formula lenders actually use, and the costs buyers routinely forget when they set a budget.
Start With What You Can Repay, Not What You Can Borrow
Approval amount and comfortable budget are two different numbers. A lender tells you the ceiling. Your life tells you the number you can carry for the next 20 to 30 years without resenting the house.
Work out the payment first and the price second. Price is just the output of payment, rate, term, and down payment.
- Housing payment includes principal, interest, taxes, insurance, HOA, and any mortgage insurance.
- Lenders qualify you on that full payment, not just principal and interest.
- Leave room for reserves after closing - one to three months of payments is a healthy floor.
The 28/36 Rule
The long-standing guideline: keep housing costs at or under 28% of gross monthly income, and total monthly debt at or under 36%. It is a starting point rather than a hard ceiling - plenty of programs allow higher ratios - but it reliably describes a payment that feels sustainable.
Those two numbers are your front-end and back-end debt-to-income ratios. Underwriters lean hardest on the back-end figure.
| 28% housing guideline | About $1,930 per month for the full housing payment |
| 36% total debt guideline | About $2,480 per month including car, cards, and student loans |
| Room left for other debt | About $550 per month |
| Front-end vs back-end | 28% is housing only; 36% is every monthly obligation |
How the Payment Is Actually Calculated
Every lender uses the same amortization formula. Three inputs drive it: the loan amount, the interest rate, and the term.
M = P x [ r(1+r)^n ] / [ (1+r)^n - 1 ], where P is the loan amount, r is the monthly rate, and n is the total number of payments. Taxes, insurance, HOA, and mortgage insurance are added on top of that result.
Solve for the payment you want first, then work backward to a price range. It keeps you from touring homes that were never going to fit.
The Costs Buyers Underestimate
Principal and interest is the smallest surprise in homeownership. The rest of the monthly cost is what stretches a budget.
- Property taxes and homeowners insurance, both of which rise over time.
- Mortgage insurance when the down payment is under 20% on a conventional loan, or on most FHA loans.
- HOA dues, which are not negotiable and can increase annually.
- Maintenance - budget roughly 1% of the home value each year.
- Utilities on a larger space than you rent today.
The approval is a maximum, not a recommendation. Buying below it is the single easiest way to protect yourself against rate, tax, and insurance changes.
How to Improve What You Can Afford
Affordability is not fixed. Small moves in the months before you apply can change your approval amount noticeably.
- Pay down revolving balances - credit card payments hit your ratio hardest.
- Avoid new car loans or financed purchases while you shop.
- Raise your credit score to reach better pricing tiers.
- Increase the down payment to lower both the loan amount and the mortgage insurance.
- Consider a longer term for qualification, then prepay once you are in.