How Much House Can I Afford? The 28/36 Rule Explained
"How much house can I afford?" is usually the first real question in any home search, and the answer depends less on the listing price than on your monthly budget. Lenders use a few simple ratios to decide how much they will lend. Knowing them helps you set a realistic price range before you fall in love with a home.
The 28/36 rule
Most lenders start with two limits based on your gross (pre-tax) monthly income:
- 28% for housing: your total housing payment, meaning principal, interest, property tax, homeowners insurance and any HOA fee, should be no more than about 28% of gross monthly income.
- 36% for all debts: housing plus every other monthly debt payment (car loans, student loans, minimum card payments) should stay under about 36%.
Whichever limit is lower sets your maximum housing payment. Some loan programs, such as FHA loans, allow higher ratios, but higher limits also leave less room in your budget.
A worked example
Sam and Jo earn $90,000 a year together, or $7,500 a month. They pay $500 a month on a car loan and have $40,000 saved for a down payment.
- Housing limit: 28% × $7,500 = $2,100
- All-debt limit: 36% × $7,500 − $500 = $2,200
The lower figure, $2,100 a month, is their maximum housing payment. At a 6.5% rate on a 30-year loan, with property tax of 1.1% a year and $1,500 of insurance, that payment supports a home price of about $307,800. You can reproduce this with our mortgage affordability calculator.
What changes the answer
Interest rates
Rates have a big effect. A higher rate means more of each payment goes to interest, so the same payment supports a smaller loan. Even half a percentage point can change your price range by tens of thousands of dollars.
Your down payment
Every extra dollar down raises your price range by a dollar without raising the payment. Putting down 20% also avoids private mortgage insurance (PMI). See how much you need with the down payment calculator.
Other debts
Because the 36% limit includes all debts, paying off a car loan or a credit card before you apply can increase what you qualify for. Check yours with the debt-to-income calculator.
Property taxes and insurance
These vary widely by location. A home in a high-tax county can cost hundreds more each month than an identical home elsewhere, so use local figures.
Affordable is not the same as comfortable
The maximum a lender approves is not a target. Homes come with costs that are not in the mortgage payment: repairs and maintenance (often budgeted at 1% of the home's value a year), utilities, furniture and the cost of moving. Many buyers deliberately aim below their maximum so they can keep saving and handle surprises.
A useful test: build a monthly budget with the new housing cost included, using the budget planner, and see what is left for savings and emergencies.
Don't forget the cash you need upfront
- Down payment: typically 3% to 20% of the price.
- Closing costs: often 2% to 5% of the loan amount. Estimate them with the closing cost calculator.
- A cash cushion: keep an emergency fund after closing.
Next steps
- Estimate your price range with the affordability calculator.
- Run a few homes through the mortgage calculator using local tax and insurance figures.
- Get pre-approved by a lender to confirm the numbers with your actual credit and income.
This guide is for general education and planning. It is not personal financial, medical, tax or legal advice. See our disclaimer.
