Step 1: Understand the 28/36 Rule
One of the most trusted guidelines for determining housing affordability is the 28/36 rule, widely used by lenders:
- No more than 28% of your gross monthly income should be spent on housing-related costs (principal, interest, taxes, insurance – often abbreviated as PITI).
- No more than 36% of your gross monthly income should go toward total debt payments, including your mortgage, credit cards, student loans, auto loans, and other liabilities.
Your housing costs should not exceed $1,820 (28% of $6,500).
Your total monthly debts – including mortgage – should not exceed $2,340 (36% of $6,500).
This rule offers a structured way to keep your housing costs and debts manageable, ensuring you don't overextend your finances.
Step 2: Calculate Your Gross Monthly Income
Your gross monthly income is the total amount you earn before taxes and deductions. Include all consistent income sources, such as:
- Base salary or hourly wages
- Bonuses or commissions (if regular)
- Side gig or freelance income
- Spousal income (if jointly applying)
Knowing your income is essential to determine how much home you can afford based on a specific income range, like $60k, $80k, or $100k.
Step 3: Tally Your Monthly Debts
Your debt-to-income (DTI) ratio plays a crucial role in determining your mortgage eligibility and affordability. To calculate it:
- Add up all monthly minimum debt payments.
- Divide by your gross monthly income.
Common monthly debts include:
- Credit card minimums
- Auto loans
- Student loans
- Personal loans
- Existing mortgage or rent (if applicable)
Keep your DTI under 36% to maximize your mortgage options.
Use our Debt-to-Income Ratio Calculator for an accurate assessment.
Step 4: Estimate Your Down Payment
Your down payment – the upfront amount you pay toward your home's purchase – significantly affects how much home you can afford.
- 20%: Ideal for avoiding PMI and lowering monthly payments
- 10%: Reduces loan size but still may require PMI
- 3-5%: Common with FHA, USDA, or first-time buyer loans
20% down = $70,000
10% down = $35,000
5% down = $17,500
The more you put down, the smaller your mortgage loan and the lower your monthly payments.
Use our Mortgage Calculator to compare loan amounts based on different down payment percentages.
Step 5: Consider Interest Rates and Loan Terms
Interest rates and loan terms directly affect your monthly mortgage payment and how much you can borrow.
- Lower rates = more affordable monthly payments
- Higher rates = higher payments and potentially smaller loan eligibility
Loan Term Options:
- 30-year fixed: Lower payments, more interest paid overall
- 15-year fixed: Higher payments, less interest paid over time
30-year mortgage = ~$1,580/month
15-year mortgage = ~$2,175/month
Even a 0.5% difference in interest rate can change your monthly payment by $100 or more.
Check your affordability using our Mortgage Calculator.
Step 6: Factor in Property Taxes, Insurance, and HOA Fees
Beyond your loan payment, homeownership comes with additional ongoing costs:
- Property Taxes: Varies widely by state and county (average: 1.1% of home value). Can add hundreds to your monthly payment.
- Homeowners Insurance: Typically $800–$1,500 per year. Required by lenders to protect the home.
- HOA Fees: Apply to condos and some housing communities. Range from $50 to over $500/month.
Taxes: $8,000/year = $667/month
Insurance: $1,200/year = $100/month
HOA: $125/month
These costs are factored into your lender's affordability calculations and must be included in your budget.
Step 7: Use a Home Affordability Calculator
Instead of guessing or relying on back-of-the-napkin math, use our Home Affordability Calculator to estimate how much home you can afford.
Simply enter:
- Your gross monthly income
- Monthly debts
- Estimated down payment
- Interest rate and loan term
- Desired location (to estimate taxes)
Try the Home Affordability Calculator now to refine your budget.
Step 8: Compare Buying vs. Renting
Not sure whether to buy now or keep renting? Use our Rent vs. Buy Calculator to evaluate your options.
- How long you plan to stay in the home
- Local rent vs. mortgage cost trends
- Tax deductions for mortgage interest and property taxes
- Expected home value appreciation
This comparison helps determine the smarter financial move based on your situation.
What Factors Affect How Much Home You Can Afford?
- Income Stability: Reliable income increases your mortgage approval odds. Dual-income households or long-term employment can expand borrowing limits.
- Debt Load: High credit card balances or student loans lower your DTI ratio and reduce the mortgage amount you can qualify for.
- Credit Score: 740+ = Excellent, qualifies for lowest rates; 680–739 = Good, eligible for most conventional loans; Below 620 = Poor, may need FHA loan or credit repair.
- Down Payment Size: Larger down payments improve your loan-to-value ratio, reducing lender risk and improving your interest rate.
- Interest Rates and Loan Terms: Fluctuating interest rates can affect your monthly payments by hundreds of dollars. Shop around for the best rate.
Frequently Asked Questions
How much house can I afford on $60k salary?
Using the 28/36 rule:
28% of $5,000/month = $1,400 for housing
Estimated home price range: $180,000–$220,000 with 10–20% down
How much home can I afford on $100k income?
28% of $8,333/month = $2,333 for housing
Estimated range: $300,000–$400,000 with modest debts and 10–20% down
What is a safe mortgage payment?
A safe mortgage payment is one that allows you to cover housing costs, all other debts, and leave room for savings and emergencies. Typically 25%–28% of your gross income.
Can I afford to buy a house with student loans?
Yes. As long as your DTI remains under 36% and your credit score is healthy, student loans alone won't disqualify you from buying a home.
What tools can help me calculate affordability?
Summary: Your Path to Home Affordability
Understanding how much house you can afford starts with a clear view of your income, debts, savings, and financial goals. By applying the 28/36 rule, considering local housing costs, and using smart tools like calculators, you can build a realistic homebuying budget.
For more help with your financial journey, try our calculators:
Stay committed, stay informed, and watch your financial future transform!