How much house you can afford depends on income, existing debt, down payment, interest rates, and how much financial margin you want after closing. Lenders approve based on formulas; you should decide based on comfort.
The biggest mistake is buying at your maximum approval. A lender may qualify you for a payment that leaves no room for maintenance, savings, or lifestyle, stretching you thin for 30 years.
The 28/36 rule
A common guideline: housing costs (principal, interest, taxes, insurance, HOA) should not exceed 28% of gross monthly income. Total debt payments including housing should not exceed 36%.
On $8,000 gross monthly income ($96,000/year), 28% is $2,240 for housing and 36% is $2,880 for all debt. If you have $400 in student loans and car payments, housing should stay near $2,480.
These are starting points, not hard limits. Some lenders approve up to 43% or even 50% debt-to-income for qualified borrowers, but higher DTI means less flexibility when rates rise or income drops.
How down payment changes affordability
A larger down payment reduces the loan amount and monthly payment. It may also eliminate PMI, which can add $100–$300+ per month on low-down-payment loans.
20% down on a $400,000 home means an $80,000 down payment and a $320,000 loan. At 6.5% for 30 years, principal and interest are about $2,022/month. At 5% down ($20,000), the loan is $380,000 and payment rises to about $2,401, plus PMI.
Do not drain every dollar of savings for a down payment. You still need closing costs (2–5% of purchase price), moving expenses, and an emergency fund after closing.
Budget for the full cost of ownership
The mortgage payment is not your total housing cost. Budget 1–2% of home value per year for maintenance and repairs. A $400,000 home may need $4,000–$8,000 annually for HVAC, roof, plumbing, and appliances.
Property taxes and insurance rise over time. A payment that fits today may feel tight after a tax reassessment or insurance premium increase.
Factor in utilities, lawn care, pest control, and HOA fees. Renters often underestimate how much more homeowners spend on housing beyond the mortgage.
Stress-test before you commit
Run the mortgage calculator at today's rate and at 1–2 percentage points higher. If you bought in 2021 at 3%, refinancing at 7% is painful. Buying at 6.5% with room for 8% is safer.
Ask whether you could still make payments on one income if you are a dual-income household. Job loss during the first years of homeownership is a common financial stress event.
Compare buying against renting with the rent vs. buy calculator. In expensive markets, renting plus investing the down payment may outperform owning over a 5–7 year horizon.
Calculate your affordable payment
Enter home price, down payment, rate, and term in the mortgage calculator to see monthly principal and interest, total interest, and how the balance declines.
Pair with the rent vs. buy calculator to see whether buying makes financial sense for your timeline and local market.