How Much House Can I Afford? Complete Affordability Guide
Calculate how much house you can afford based on your income, debt, and down payment. Learn the 28/36 rule and what lenders look at.
The 28/36 Rule Explained
Lenders use the 28/36 rule: your mortgage payment (including taxes and insurance) should be no more than 28% of gross monthly income, and total debt payments no more than 36%. On a $7,000/month gross income ($84,000/year): maximum housing payment = $1,960/month, maximum total debt = $2,520/month. If you have $400/month in car and student loan payments, your maximum housing payment drops to $2,120/month (36% rule becomes the limiting factor).
What Lenders Actually Look At
Your mortgage approval depends on four main factors: credit score (740+ gets best rates; below 620 makes approval difficult), debt-to-income ratio (front-end housing ratio and back-end total debt ratio), down payment (3% minimum for conventional, 0% for VA, 3.5% for FHA), and employment history (2+ years of stable income preferred). Lenders will also verify your assets, check for recent large deposits, and pull your credit report from all three bureaus.
Hidden Costs Beyond the Mortgage
The purchase price is just the beginning. Budget for: property taxes (0.5-2.5% of home value annually), homeowners insurance ($1,000-3,000/year), private mortgage insurance/PMI if under 20% down (0.5-1% of loan/year), maintenance and repairs (1-2% of home value/year), HOA fees if applicable ($200-500+/month), and closing costs (2-5% of purchase price upfront). A $300,000 home really costs $330,000+ in year one and $5,000-15,000/year in carrying costs beyond the mortgage.
Down Payment Strategies
20% down eliminates PMI and gets the best rates, but isn't always necessary. Options include: conventional loans (3-5% down), FHA loans (3.5% down with 580+ credit), VA loans (0% down for veterans), USDA loans (0% down in rural areas), and down payment assistance programs (available in most states for first-time buyers). Saving a larger down payment means a lower monthly payment and less interest over the life of the loan. Every additional $10,000 down reduces your monthly payment by about $60-70.
Rent vs Buy: When Buying Makes Sense
Buying generally makes sense when: you plan to stay 5+ years (closing costs need time to recoup), your total housing cost would be similar to rent, local home prices aren't massively inflated vs rents, you have emergency savings beyond the down payment, and you value stability and equity building. Use the price-to-rent ratio: divide home price by annual rent. Below 15 favors buying, above 20 favors renting. Between 15-20 is a toss-up depending on personal factors.
Related Free Tools
Home Affordability Calculator
Calculate how much house you can afford based on income, debts, and down payment using the 28/36 rule
Mortgage Calculator
Calculate mortgage payments with taxes, insurance, PMI, and amortization
Rent vs Buy Calculator
Compare the financial impact of renting vs buying a home over time with net worth projections
Frequently Asked Questions
How much house can I afford on $100,000 salary?
Using the 28% rule, your maximum monthly housing payment is about $2,333. At current rates (around 6.5%), this supports a home price of roughly $350,000-400,000 with 10% down, depending on property taxes and insurance in your area. With significant other debts, this number drops.
Is it better to buy a cheaper house?
Often yes. Being 'house poor' (spending too much on housing) limits your ability to invest, handle emergencies, and enjoy life. A good rule: buy less house than you're approved for. If you qualify for $400K, consider buying at $300-350K. The extra cash flow compounds through investments and stress reduction.
How much should I save before buying a house?
Aim for: down payment (3-20% of purchase price), closing costs (2-5% of purchase price), emergency fund (3-6 months of expenses), and a moving/furnishing budget ($5,000-15,000). For a $300,000 home with 10% down, you need roughly $50,000-65,000 in total savings.