How Much House Can You Afford?

Affordability isn't just the price a lender will approve — it's the payment you can comfortably live with. Lenders lean on a couple of ratios to set a ceiling, but the smart number is usually below that limit, leaving room for the rest of your life.

The 28/36 rule

The classic guideline says your housing costs should stay under 28% of gross monthly income, and your total debt payments (housing plus car loans, student loans, credit cards) should stay under 36%. These are the front-end and back-end debt-to-income ratios lenders check.

What counts as the housing payment

It's more than principal and interest. Lenders look at PITI: principal, interest, property taxes and homeowners insurance — plus PMI if your down payment is under 20%, and any HOA dues. All of it counts toward that 28%.

How the down payment changes things

• •A bigger down payment means a smaller loan, so a lower monthly payment for the same house.
• •Reaching 20% down typically removes PMI, cutting the payment further.
• •More cash down can also earn a better interest rate, compounding the savings.

Don't forget the other costs

Closing costs, moving, repairs and a maintenance cushion all sit outside the mortgage payment. A common rule of thumb is to budget around 1% of the home's value per year for upkeep. Borrowing the maximum a lender offers leaves nothing for these — which is why the affordable number is usually below the approved one.

1. 1Add up your gross monthly income before tax.
2. 2Total your existing monthly debt payments.
3. 3Apply the 28/36 rule to find your housing-payment ceiling.
4. 4Subtract taxes, insurance and HOA to see what's left for principal and interest.
5. 5Factor in your down payment to arrive at a realistic price range.