How Much House Can I Afford? The Complete Guide

The Quick Answer: Two Key Rules

Lenders use two ratios to determine what you can afford. The 28% front-end rulesays your total housing costs (PITI: principal, interest, taxes, insurance) should not exceed 28% of gross monthly income. The 43% back-end rule says all monthly debt payments combined (housing plus car, student loans, credit cards) should not exceed 43% of gross monthly income.

Applying the 28% Rule

To find your maximum monthly housing budget: Monthly Gross Income × 0.28 = Max PITI payment.

• $6,000/month income → Max PITI: $1,680/month
• $8,000/month income → Max PITI: $2,240/month
• $10,000/month income → Max PITI: $2,800/month
• $12,000/month income → Max PITI: $3,360/month

From your max PITI, subtract estimated property taxes and insurance to get your max P&I payment, then work backward to find the loan amount.

How Down Payment Affects Affordability

Every dollar of down payment reduces your loan size by a dollar, which reduces your monthly P&I payment. Additionally:

• 20% down eliminates PMI (~$50–$200/month savings)
• Higher down payment often qualifies you for better interest rates
• More down = more equity from day one = better financial cushion

However, depleting your emergency fund for a larger down payment is counterproductive. Always maintain 3–6 months of expenses in liquid savings after closing.

What Lenders Actually Look At

Beyond income ratios, lenders evaluate:

• Credit score: A 740+ score qualifies for the best rates. Below 620 makes conventional mortgage approval very difficult.
• Employment history: 2+ years at the same employer (or same field for self-employed) is typically required.
• Assets: Reserves (cash after down payment) of 2–6 months of mortgage payments are often required.
• Debt-to-income ratio: Both front-end (28%) and back-end (43%) ratios matter.
• Loan type: FHA loans allow lower credit scores (580+) and DTI up to 50% but require mortgage insurance.

The True Monthly Cost of Homeownership

Your mortgage payment is just one piece. Budget for the full picture:

• Principal and interest (your mortgage payment)
• Property taxes (US average: ~1.1% of home value annually)
• Homeowners insurance (~$100–$200/month for a median home)
• PMI if less than 20% down (~$50–$200/month)
• HOA fees if applicable ($0–$800+/month)
• Maintenance and repairs (budget 1–2% of home value per year)
• Utilities (higher than renting due to larger space)

A Practical Calculation

$90,000 annual income ($7,500/month gross), $500/month in other debts, $60,000 down payment, 6.5% rate, 30-year term:

• 28% front-end max: $2,100/month PITI
• 43% back-end max: $3,225 total debt − $500 other debts = $2,725 max housing
• Conservative max: $2,100/month PITI (front-end limit applies)
• Subtract taxes ($300) + insurance ($150) = $1,650/month P&I
• At 6.5%, that P&I supports a ~$262,000 loan
• Add down payment: $262,000 + $60,000 = ~$322,000 max home price

Use our Home Affordability Calculator to run this calculation instantly with your specific numbers, debt situation, and local property tax rate.