How Much House Can I Afford?

How much house can I afford?

The amount of house you can afford depends on several factors: your income, existing debts, the down payment you can make, current mortgage rates, and the ongoing costs of homeownership like property taxes and insurance. Our calculator uses the same methodology that lenders use to determine your maximum home price.

As a general rule, your total monthly housing costs (mortgage payment, property taxes, insurance, and HOA fees) should not exceed 28% of your gross monthly income. And your total debt payments (housing costs plus car loans, student loans, credit cards) should stay below 36% of your gross monthly income.

The 28/36 rule explained

Most lenders use the "28/36 rule" as a guideline for mortgage approval:

• 28% front-end ratio: Your monthly housing expenses should not exceed 28% of your gross monthly income.
• 36% back-end ratio: Your total monthly debt payments (including housing) should not exceed 36% of your gross monthly income.

For example, if you earn $85,000 per year ($7,083/month), your housing payment should ideally stay below $1,983/month (28%), and your total debts below $2,550/month (36%).

Some loan programs, like FHA loans, allow higher ratios (up to 43% or even 50% in some cases), but exceeding the 28/36 guideline increases your risk of financial strain.

What factors affect home affordability?

• Income: Higher income means you can afford a larger mortgage payment. Lenders look at your gross (pre-tax) income, including salary, bonuses, and other regular income.
• Existing debts: Monthly payments on car loans, student loans, and credit cards reduce the amount available for housing. Paying off debts before buying can significantly increase your home budget.
• Down payment: A larger down payment reduces your loan amount, lowering monthly payments. Putting down 20% also eliminates private mortgage insurance (PMI), saving $100–$300+ per month.
• Interest rate: Even small rate changes have a big impact. On a $300,000 loan, the difference between 6% and 7% is about $200/month — or $72,000 over 30 years.
• Property taxes: These vary significantly by location, from under 0.5% in Hawaii to over 2% in New Jersey and Illinois. A higher tax rate reduces how much home you can afford.
• Home insurance: Required by all lenders, costs vary based on location, home value, and coverage level. Expect $1,000–$3,000+ per year.
• HOA fees: Common in condos and planned communities, these can range from $100 to $500+ per month and directly reduce your buying power.

How to increase what you can afford

If the calculator shows you can't afford the home you want, here are strategies to increase your budget:

• Pay off existing debts. Eliminating a $400 car payment could increase your home budget by $50,000 or more.
• Save a larger down payment. Going from 10% to 20% down on a $300,000 home reduces your loan by $30,000 and eliminates PMI.
• Improve your credit score. Better credit qualifies you for lower rates. Improving from "fair" to "excellent" credit could save 0.5–1.5% on your mortgage rate.
• Consider a longer loan term. A 30-year mortgage has lower monthly payments than a 15-year, giving you more buying power (though you'll pay more interest over time).
• Look in areas with lower property taxes. Property tax rates vary enormously even within the same metro area.

Down payment requirements

The down payment you need depends on the type of loan:

• Conventional loan: Typically 5–20% down. Less than 20% requires private mortgage insurance (PMI).
• FHA loan: As low as 3.5% down with a credit score of 580+. Requires mortgage insurance for the life of the loan.
• VA loan: 0% down for eligible veterans and active-duty service members. No mortgage insurance required.
• USDA loan: 0% down for eligible rural and suburban homebuyers who meet income limits.

Frequently asked questions

How much income do I need to buy a $400,000 house?

With a 20% down payment ($80,000), a 6.5% rate, and the 28/36 rule, you'd need roughly $95,000–$105,000 in annual household income to comfortably afford a $400,000 home. This varies based on your debts, location (property taxes), and the specific loan terms you qualify for.

Is it better to put 20% down?

Putting 20% down eliminates PMI (which typically costs 0.5–1% of the loan annually) and lowers your monthly payment. However, if saving 20% would delay buying by many years, it may be worth buying sooner with a smaller down payment, especially if home prices in your area are rising.

What's included in a monthly mortgage payment?

A typical monthly payment includes four components, often called "PITI": Principal (paying down the loan balance), Interest (the cost of borrowing), Taxes (property taxes held in escrow), and Insurance (homeowner's insurance). HOA fees and PMI may also be included.

Should I buy the most expensive house I can afford?

Just because you qualify for a certain amount doesn't mean you should spend it all on housing. Buying below your maximum leaves room for other financial goals like retirement savings, emergency funds, travel, and unexpected home repairs. Many financial advisors recommend spending no more than 25% of your take-home pay on housing.