How Much House Can You Actually Afford?

The amount a lender will approve you to borrow and the amount you can comfortably afford are two very different numbers. Banks base approval on ratios that keep them safe, not on the life you want to live. Buy at the top of your approval and you may find yourself “house poor” — technically able to make the payment, but with nothing left for savings, travel, or emergencies. Here is how to find your real number.

The 28/36 rule

The most widely used guideline is the 28/36 rule. It says your total housing payment — principal, interest, property taxes, and insurance, often called PITI — should not exceed 28% of your gross monthly income, and your total debt payments (housing plus car loans, student loans, credit cards, and any other debt) should not exceed 36%. Lenders may stretch these limits, but 28/36 is a time-tested boundary for financial comfort.

A worked example

Say your household earns $8,000 a month before taxes. The 28% rule caps your housing payment at about $2,240. The 36% rule caps all debt at $2,880 — so if you already pay $600 a month on a car and student loans, only $2,280 is left for housing under the back-end limit. The tighter of the two limits is therefore the 28% cap of $2,240. Depending on local taxes, insurance, and your rate, that payment might support a home price somewhere around $300,000 — possibly far less than a lender would technically approve.

Costs buyers forget

The mortgage payment is only the beginning. Homeowners also face property taxes, homeowners insurance, and often private mortgage insurance if the down payment is under 20%. Then come maintenance and repairs — a common rule of thumb is to budget about 1% of the home’s value per year — plus utilities that are usually higher than in a rental, and possibly HOA fees. A home that fits your mortgage budget can still strain you once these are added.

The role of the down payment

A larger down payment lowers your loan amount, your monthly payment, and your total interest, and reaching 20% lets you avoid private mortgage insurance entirely. But draining every dollar into a down payment is a mistake if it leaves you without an emergency fund. Aim to put down as much as you can while keeping three to six months of expenses in reserve for the surprises that homeownership inevitably brings.

Finding your comfortable number

• Start with the 28/36 rule, then adjust downward if you value savings, travel, or flexibility.
• Include property taxes, insurance, and PMI in your payment estimate — not just principal and interest.
• Budget about 1% of the home price annually for maintenance and repairs.
• Keep an emergency fund intact rather than spending it all on the down payment.
• Get pre-approved to know your ceiling, but set your own target below it.
• Stress-test the payment: could you still cover it if your income dropped or rates rose on a variable loan?

What a $350,000 home really costs each month

Here is an illustrative monthly budget for a $350,000 home bought with 10% down ($35,000), financed with a $315,000, 30-year loan at 6.5%. Property tax, insurance, and PMI rates vary widely by location and credit profile, so treat these as sample assumptions and substitute local figures.

The payment a lender counts, principal, interest, taxes, insurance, and PMI, is about $2,593. Under the 28% front-end guideline that requires gross income of roughly $9,260 a month, or about $111,000 a year, with little other debt. The maintenance reserve is not part of the lender’s math, but the roof, water heater, and furnace do not care: setting that money aside each month is what keeps a repair from becoming credit card debt.

How your credit score and rate change the answer

Affordability is extremely sensitive to the interest rate. A $2,000 principal-and-interest budget supports a loan of roughly $333,000 at 6% over 30 years, about $316,000 at 6.5%, and about $301,000 at 7%. Borrowers with higher credit scores and larger down payments generally qualify for better pricing, so improving your score by paying down card balances and fixing report errors before you apply can expand your budget as much as a raise would.

Upfront cash you will need

• Down payment: from 3% on some conventional programs and 3.5% on FHA loans, up to 20% or more to avoid PMI.
• Closing costs: typically about 2–5% of the purchase price for lender fees, title insurance, appraisal, and prepaid taxes and insurance.
• Inspection and moving costs: often several hundred to a few thousand dollars.
• Reserves: some lenders want to see a few months of payments in savings after closing, and you should want that too.

Renting versus buying

Buying builds equity and locks in a principal-and-interest payment, but it comes with transaction costs, maintenance, and less flexibility. If you might move within a few years, the combination of closing costs on the way in and selling costs on the way out can outweigh the equity you build, as the amortization table in our mortgage guide shows. A rent-versus-buy calculator that includes appreciation, investment returns on the down payment, and your expected time in the home gives a far better answer than the old saying that rent is throwing money away.

Pre-approval versus your own budget

A mortgage pre-approval is a lender’s written statement of how much it is willing to lend after reviewing your credit, income, assets, and debts. It is valuable because sellers take pre-approved buyers seriously, but it answers the lender’s question, not yours. Before you shop, write down the monthly payment you are comfortable with after savings goals, childcare, travel, and other priorities, then work backward to a price range. Share that price range with your real estate agent rather than your maximum approval, and resist the pressure to stretch once you start touring homes.

The bottom line

Affordability is not the maximum a bank will lend — it is the payment that lets you own a home and still build wealth, handle emergencies, and enjoy your life. Run the numbers honestly, include every cost, and aim comfortably below your approval limit. Your future self will thank you.