Key takeaways
- The 28/36 rule caps housing costs at 28% of gross monthly income and total debt payments at 36%.
- Your affordable price depends on your full payment: principal, interest, taxes, insurance, mortgage insurance and HOA dues.
- Lenders may approve DTIs well above 36%, but approval is not the same as affordability.
- Leave room for closing costs, reserves, maintenance and your other financial goals.
In this guide
How much house you can afford depends on your income, existing debts, down payment, interest rate and local costs. A common starting point is the 28/36 rule: spend no more than 28% of gross monthly income on housing and no more than 36% on all debt payments combined. Work backward from that payment to find a price range.
Below, we explain how lenders measure affordability, walk through a full example, and show where to leave yourself a margin.
What goes into your monthly housing payment
Lenders and budgets both look at your full housing payment, often summarized as PITI:
- Principal: the portion that pays down your loan balance
- Interest: the cost of borrowing
- Taxes: property taxes, usually collected monthly into escrow
- Insurance: homeowners insurance, also usually escrowed
Add to that any mortgage insurance and HOA or condo dues. Property taxes and insurance vary widely by location, and in some areas they can add hundreds of dollars a month. Checking what homeowners insurance costs in your area and the local tax rate before you shop gives you a far more accurate budget.
How lenders use debt-to-income ratio (DTI)
Your debt-to-income ratio compares monthly debt obligations to gross monthly income. Lenders look at two versions:
| Ratio | What it includes | 28/36 guideline |
|---|---|---|
| Front-end (housing) ratio | Your projected housing payment (PITI plus mortgage insurance and HOA dues) | 28% or less |
| Back-end (total) ratio | Housing payment plus car loans, student loans, minimum credit card payments, personal loans, child support and similar debts | 36% or less |
Everyday expenses like groceries, utilities and phone bills are not counted in DTI, which is one reason a lender's number can overstate what feels affordable.
What lenders actually allow
The 28/36 rule is a conservative guideline, not a legal limit. Depending on the loan program, your credit, and your savings, lenders may approve total DTIs in the mid-40s or higher. Conventional loans can sometimes go up to around 50% with strong compensating factors, and FHA can allow higher ratios in some cases.
Worked example: applying the 28/36 rule
Let us walk through a hypothetical buyer. All figures are illustrative; your rate, taxes and insurance will differ.
Now consider what changes the answer:
- Smaller down payment: With less than 20% down on a conventional loan, private mortgage insurance adds to the monthly payment, which lowers the loan amount you can support within the same $2,100.
- More debt: If the car and student loans totaled $900 a month, the back-end limit would leave only $1,800 for housing, becoming the binding constraint.
- Higher rate: A higher interest rate reduces the loan that the same payment can support.
- High-tax area: If taxes and insurance were $700 instead of $410, the principal and interest budget would shrink by nearly $300.
Factors that change how much house you can afford
| Factor | Effect on your budget |
|---|---|
| Interest rate | Higher rates shrink the loan a given payment can support |
| Down payment | More down reduces the loan, and can eliminate mortgage insurance |
| Credit score | Better scores usually earn lower rates and cheaper PMI |
| Existing debts | Higher monthly debts reduce room under the back-end ratio |
| Property taxes and insurance | Vary by location and can shift your budget significantly |
| Loan term | A 15-year term raises the payment compared with a 30-year term |
| HOA dues | Count toward your housing ratio |
Loan term matters more than many buyers expect. Our comparison of fixed vs adjustable rate mortgages shows how 15- and 30-year payments differ.
Don't forget cash needed at closing
Affordability is not just monthly. You will also need cash for:
- Your down payment
- Closing costs, which commonly run a few percent of the loan amount
- Reserves some lenders require after closing
- Moving costs, immediate repairs and furnishings
Draining savings to close leaves you exposed if the water heater fails in month two.
Ways to afford more without overstretching
If your number comes in below the homes you want, some levers are safer than others:
- Pay down revolving debt before applying, which lowers your back-end ratio and may raise your credit score.
- Improve your credit to qualify for a better rate and cheaper mortgage insurance.
- Save a larger down payment to shrink the loan and possibly avoid mortgage insurance.
- Look at lower-tax or lower-insurance areas, since those costs come straight out of your housing budget.
- Check assistance programs offered by state and local housing agencies for eligible buyers.
Be cautious about stretching with a longer term, an adjustable rate you cannot afford at its cap, or a co-borrower whose finances are uncertain.
How to turn your number into a real price range
Once you have a target payment and price, get a mortgage preapproval. The lender will verify your income, assets, debts and credit and tell you how much it is willing to lend. If the preapproval amount is higher than your own number, stick with your own. If it is lower, you will learn which factor is holding you back.
For a step-by-step view of the entire buying process, see our first-time home buyer guide.
The bottom line
Start with the 28/36 rule, estimate your full payment including taxes and insurance, and work backward to a price. Then test the payment against your real take-home budget and savings goals. The right number is the one you can carry comfortably for years, not the maximum a lender will approve.
Frequently asked questions
How much house can I afford on a $100,000 salary?
Using the 28/36 rule, a $100,000 salary is about $8,333 a month, so housing costs of roughly $2,333 a month, and total debts of about $3,000. How much home that buys depends on your interest rate, down payment, property taxes, insurance and existing debts. Plug your own numbers into the method in this guide rather than relying on a single rule-of-thumb multiple.
What is a good debt-to-income ratio for a mortgage?
Many lenders consider a total DTI of 36% or less comfortable, and 43% is a common reference point. Some loan programs allow higher ratios, sometimes up to around 50% for conventional loans or above that for FHA with strong compensating factors. A lower DTI generally makes approval easier and leaves more room in your monthly budget.
Does the 28/36 rule use gross or net income?
The 28/36 rule uses gross monthly income, meaning your pay before taxes and deductions such as retirement contributions and health insurance. Because your take-home pay is lower, a payment that looks fine under the rule can feel tight in practice. It is worth testing the payment against your actual net income and monthly spending as well.
Should I buy a house at the top of my budget?
Generally it is wiser to leave a cushion. Owning a home brings costs that renters do not face, including repairs, maintenance, rising property taxes and insurance premiums. Buying below your maximum approval helps you keep saving for emergencies and retirement, and makes it easier to absorb a job change or unexpected expense without falling behind on your mortgage.
What other costs should I budget for besides the mortgage payment?
Plan for closing costs, moving expenses, utilities that may be higher than in a rental, HOA dues if applicable, and ongoing maintenance and repairs. Many owners set aside roughly 1% or more of the home's value each year for upkeep, with older homes often needing more. Keep an emergency fund separate from your down payment savings.
Official Resources & Further Reading
Use these resources to check current guidance. Requirements and availability may vary by state and provider.
This guide is for general educational purposes and is not individualized financial, legal, tax or insurance advice. Product terms, rates and availability vary by provider and location. How we make money.
