How Much House Can I Afford? A Practical Guide

Most people begin house hunting by looking at prices. A better starting point is your income and your existing debts, because those decide how large a monthly payment you can carry. This guide walks through the logic lenders use and the extra checks that keep a payment comfortable in real life.

Start with the monthly payment, not the price

A home’s price matters because of what it does to your monthly cost. That cost is more than the loan payment. It includes:

• Principal and interest, the loan repayment.
• Property tax and homeowners insurance, which lenders often collect with the payment in an escrow account.
• Mortgage insurance if you put less than 20% down on a conventional loan.
• HOA dues if the home has them.

Lenders add these together and compare the total with your gross monthly income. Use the mortgage calculator to see the whole figure for a specific price.

The 28/36 guideline

A traditional guideline says housing should take no more than about 28% of gross monthly income, and all debts together no more than about 36%. These are often called the front-end and back-end ratios. Many loan programs allow more. FHA loans commonly use 31% and 43%, and some lenders approve higher ratios when other factors are strong. They are guides, not promises of approval.

Here is the arithmetic for a household earning $100,000 a year:

Step	Amount
Gross monthly income ($100,000 ÷ 12)	$8,333
28% for housing	$2,333
36% for all debts	$3,000
Existing debts (car, student loan, cards)	$400
Room left for housing under the 36% limit	$2,600

The housing limit is the lower of the two numbers: $2,333 a month. That whole payment, including taxes and insurance, must fit inside it. The affordability calculator turns this around and finds the price whose full payment fits the budget, using your down payment, rate and local property tax. To see the answer for a specific income, browse how much house you can afford by salary.

Why the guideline is a ceiling, not a target

A lender’s limit is about whether you can repay, not whether the payment feels comfortable. Those can differ a lot. Ratios use gross income, before taxes and retirement contributions, and they leave out groceries, childcare, utilities, commuting and saving. If your budget is already tight, aim for a payment well under the maximum. The affordability calculator shows a comfortable level (25% housing, 33% total) as well as the standard and stretch levels.

Down payment and cash to close

Your down payment affects the price you can afford in two ways: it reduces the loan, and at 20% or more it avoids private mortgage insurance on a conventional loan. Smaller down payments are common, but they cost more each month. Read PMI explained for the details.

You also need cash for closing costs, which often run about 2% to 5% of the price, plus moving costs and a cushion for repairs. Do not spend every dollar on the down payment. See the closing costs guide.

Location changes the math

Two homes at the same price can have very different monthly costs because property tax rates vary widely. Census data put the typical effective rate across the U.S. near 1% of home value, but it ranges from well under half a percent in some states to over 2% in others. Check the rate for the area on the property tax by state page or enter a ZIP code in the calculators.

A simple process

1. Add up your monthly debt payments and your gross income.
2. Decide on a payment you are comfortable with, then compare it with the guideline limits.
3. Enter your down payment, a realistic rate and local taxes into the affordability calculator.
4. Subtract closing costs and reserves from your savings before you set the down payment.
5. Get pre-approved to confirm what lenders will actually offer, and treat their number as a maximum rather than a goal.

If the result is lower than you hoped, the usual levers are a larger down payment, paying down debt with high monthly payments, shopping for a lower rate, or looking in an area with lower property taxes.

Common questions

Should I use gross or take-home pay to decide?

Lenders use gross income, which is why their limit can feel high. For your own planning, look at take-home pay and your actual budget as well. A useful check: after paying the full housing cost, do you still have room for savings, emergencies and the lifestyle you want?

How much does my credit score matter?

A lot. A higher score generally gets a lower rate, which lets you afford a higher price at the same payment, and it can lower mortgage insurance costs. Check your credit reports early, fix errors, and avoid new debt before applying.

Can two incomes change the answer?

Yes. Lenders can count the income of everyone on the loan, but also the debts of everyone on the loan. When you apply with a partner, include both incomes and both sets of debts in the affordability calculator to see the combined picture.

Key takeaways

• Work from monthly payment to price, not the other way around.
• Use the 28/36 guideline as a ceiling, and aim lower for comfort.
• Include taxes, insurance, mortgage insurance and HOA in the payment.
• Keep money aside for closing costs and reserves.