Find out how much house you can afford based on your income, debts, and the 28/36 rule
Determining how much house you can afford requires more than just looking at the listing price. Lenders evaluate your ability to make mortgage payments using the debt-to-income (DTI) ratio, which compares your monthly debt obligations to your gross monthly income. The widely used 28/36 rule provides a practical guideline: your housing costs, including mortgage principal, interest, property taxes, and insurance, should not exceed 28% of your gross monthly income. Additionally, your total monthly debt payments, including housing costs plus car loans, student loans, and credit card minimums, should stay below 36% of your gross income.
Your down payment plays a crucial role in affordability. A larger down payment reduces your loan amount, which lowers your monthly payment and may help you qualify for a better interest rate. Putting down at least 20% also eliminates the need for private mortgage insurance (PMI), which typically costs 0.5% to 1% of the loan amount annually. However, many loan programs allow down payments as low as 3% to 5% for first-time buyers, making homeownership accessible even without a large savings cushion.
Remember that the maximum amount a lender will approve is not necessarily the amount you should borrow. Consider your lifestyle expenses, savings goals, emergency fund, and future plans when setting your housing budget. Property taxes and insurance costs vary significantly by location and can add hundreds of dollars to your monthly payment. Our calculator factors in all of these costs to give you a realistic picture of what you can comfortably afford, helping you shop for homes within a budget that keeps your finances healthy and sustainable.