How Much House Can You Afford?
Published May 30, 2026
The price a lender will approve and the price you can comfortably live with are rarely the same number. Here is how to find the second one.
- The 28/36 rule is the standard sanity check: keep housing under 28% of gross income and total debt under 36%.
- Lenders focus on income, debt-to-income ratio, down payment, and credit score.
- Putting down 20% eliminates private mortgage insurance (PMI) and lowers your rate.
- Property taxes, insurance, closing costs, and maintenance routinely add hundreds per month beyond the principal and interest payment.
- If you plan to move within a few years, renting often wins on pure numbers.
The 28/36 rule
The most widely cited affordability guideline comes from conventional mortgage underwriting and has been endorsed by the Consumer Financial Protection Bureau (CFPB). It works in two tiers.
These are not hard laws. Some FHA and VA loan programs allow higher ratios, and a strong credit score can buy you flexibility. But if a target home pushes you well past 28/36, it is worth pausing before you fall in love with the listing.
What lenders actually check
Four factors drive every mortgage approval or denial.
Lenders want stable, documented income with at least a two-year history. Self-employed buyers typically need two years of tax returns.
Gaps or recent job changes can complicate approval.
Your total monthly debt payments divided by gross monthly income. This single number most often determines how much house you can finance.
Lower DTI unlocks a larger loan at a better rate.
More cash upfront means a smaller loan, a lower monthly payment, and often a better interest rate. Crossing the 20% threshold eliminates PMI entirely.
Even 5% more down can save tens of thousands over 30 years.
A score above 740 typically earns the best rates. Dropping from 760 to 680 can add 0.5-1% to your rate, which on a $400,000 loan is $100+ per month.
Check and repair your credit before you apply.
Down-payment tiers at a glance
Your down payment percentage shapes your entire loan. Here is what changes at each threshold on a $350,000 home.
PMI typically costs 0.5-1.5% of the loan per year. On a $315,000 loan that is $130-$395 per month added to your payment until you reach 20% equity. Crossing the 20% down threshold at purchase removes it permanently from day one.
The costs buyers forget
The mortgage payment is just the start. These extras routinely add $400-$900 per month that buyers fail to budget for.
The CFPB's homebuying guide flags closing costs (typically 2-5% of the loan amount) as one of the most common surprises for first-time buyers. On a $300,000 loan that is $6,000-$15,000 due at closing, on top of your down payment.
Beyond closing costs, plan for these ongoing expenses every year you own:
- Property taxes and homeowners insurance, collected monthly through escrow and often reset upward when you buy.
- PMI, if your down payment is under 20%, until you build enough equity to cancel it.
- Maintenance and repairs, with a common rule of thumb being 1% of the home’s value per year (more for older homes).
- HOA dues, which can range from under $100 to over $500 per month depending on the community.
- Utilities, which tend to be higher in a house than an apartment.
Plug a realistic interest rate, tax estimate, and insurance cost into the Mortgage Calculator to see your true monthly number before you make an offer.
Rent vs. buy: when buying does not win
Buying is not automatically the right move. If you plan to move within three to five years, the transaction costs of buying and then selling can easily exceed the equity you build.
You plan to stay at least five years, local rents are high relative to home prices, and you have enough saved for a solid down payment plus reserves.
Equity builds, and your payment stays fixed (with a fixed-rate loan).
Your timeline is short, home prices in your area are high relative to rent, or you need flexibility for a career or life change in the near future.
Lower upfront cost and zero maintenance risk.
The Rent vs Buy Calculator runs the full comparison over your expected time horizon so the decision is based on math, not pressure from the market.
Your home-buying checklist
This guide is for general education and isn’t personalized financial advice. Talk to a qualified financial professional about your specific situation.