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, your housing budget shrinks to $2,280 minus that $600, leaving roughly $2,280 for housing under the tighter of the two limits. At current rates, that payment might support a home price in the mid-$300,000s once taxes and insurance are included — 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?

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.