How Much House Can I Afford? The Complete Guide
Quick Answer
- *The 28/36 rule: housing costs should be under 28% of gross income; total debt under 36%.
- *On a $100,000 household income, that means a maximum housing payment of about $2,333/month.
- *The median U.S. home price is approximately $416,000 as of Q4 2025, according to the National Association of Realtors.
- *Hidden costs (taxes, insurance, maintenance, PMI) typically add $500-$1,500/month on top of the mortgage.
The 28/36 Rule Explained
The 28/36 rule is the most widely used guideline for home affordability. It comes from conventional mortgage underwriting standards and has two parts:
- 28% rule (front-end ratio): Your total monthly housing costs should not exceed 28% of your gross monthly income. Housing costs include your mortgage principal and interest, property taxes, homeowner’s insurance, PMI, and HOA fees.
- 36% rule (back-end ratio): Your total monthly debt obligations — housing costs plus car payments, student loans, credit card minimums, and any other debt — should not exceed 36% of your gross monthly income.
28/36 Rule by Income Level
| Annual Gross Income | Max Housing Payment (28%) | Max Total Debt (36%) |
|---|---|---|
| $60,000 | $1,400/mo | $1,800/mo |
| $80,000 | $1,867/mo | $2,400/mo |
| $100,000 | $2,333/mo | $3,000/mo |
| $125,000 | $2,917/mo | $3,750/mo |
| $150,000 | $3,500/mo | $4,500/mo |
| $200,000 | $4,667/mo | $6,000/mo |
These are maximum thresholds, not targets. Staying below them gives you more financial flexibility for savings, emergencies, and lifestyle.
What Is a Debt-to-Income Ratio (DTI)?
Your DTI ratio is the percentage of your gross monthly income that goes toward debt payments. Lenders use it to determine how much mortgage you qualify for.
There are two DTI ratios:
- Front-end DTI: Housing costs only ÷ gross monthly income
- Back-end DTI: All debt payments ÷ gross monthly income
According to the Consumer Financial Protection Bureau, the maximum back-end DTI for a Qualified Mortgage (QM) is 43%. However, some lenders approve borrowers with DTIs up to 50% with strong compensating factors (high credit score, large down payment, significant savings).
Just because a lender will approve you at 43% DTI does not mean it is a good idea. At that level, nearly half your pre-tax income goes to debt payments, leaving very little margin for everything else. Most financial advisors recommend keeping your back-end DTI under 35%.
Down Payment Requirements
The size of your down payment directly affects your monthly payment, interest rate, and whether you need to pay private mortgage insurance (PMI).
| Loan Type | Minimum Down Payment | PMI Required? |
|---|---|---|
| Conventional | 3-5% | Yes, until 20% equity |
| FHA | 3.5% | Yes (for the life of the loan in most cases) |
| VA | 0% | No (but has a funding fee) |
| USDA | 0% | Yes (guarantee fee) |
According to the National Association of Realtors, the median down payment for first-time homebuyers in 2025 was 8%, while repeat buyers put down a median of 19%. The 20% rule is no longer the norm for first-time buyers.
The Real Cost of a Smaller Down Payment
On a $400,000 home with a 6.5% rate on a 30-year mortgage:
| Down Payment | Loan Amount | Monthly P&I | PMI (est.) | Total Monthly |
|---|---|---|---|---|
| 5% ($20K) | $380,000 | $2,402 | $190 | $2,592 |
| 10% ($40K) | $360,000 | $2,275 | $135 | $2,410 |
| 20% ($80K) | $320,000 | $2,023 | $0 | $2,023 |
Putting 5% down instead of 20% costs you an extra $569/month — $6,828 per year. Some of that is PMI that goes away once you reach 20% equity, but the larger loan amount means more interest over the life of the mortgage.
Hidden Costs of Homeownership
Your mortgage payment is just the beginning. Here are the costs that catch first-time buyers off guard.
Property Taxes
According to the Tax Foundation, the average effective property tax rate in the U.S. is 1.1% of home value. On a $400,000 home, that is $4,400/year ($367/month). But rates vary enormously by location — from 0.31% in Hawaii to 2.47% in New Jersey.
Homeowner’s Insurance
The national average homeowner’s insurance premium is approximately $2,230/year ($186/month), according to the Insurance Information Institute. Homes in hurricane or wildfire zones can cost $4,000-$8,000+ per year.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, lenders require PMI. Typical PMI rates are 0.5-1.5% of the loan amount per year. On a $380,000 loan, that is $158-$475/month. You can request PMI removal once you reach 20% equity, and it is automatically canceled at 22%.
Maintenance and Repairs
The general rule is to budget 1-2% of your home’s value per year for maintenance and repairs. For a $400,000 home, that is $4,000-$8,000/year ($333-$667/month). New homes need less; older homes need more. Major systems (roof, HVAC, water heater) can cost $5,000-$15,000 each to replace.
HOA Fees
If you buy in a community with a homeowner’s association, monthly fees range from $100 to $500+ depending on amenities and location. Condos in urban areas can have HOA fees exceeding $800/month.
A Complete Affordability Example
Household income: $110,000/year ($9,167/month gross). Existing debt payments: $500/month (car loan + student loan). Down payment savings: $50,000. Credit score: 740.
Step 1: Calculate maximum housing payment
28% of $9,167 = $2,567/month max for housing
Step 2: Check against 36% rule
36% of $9,167 = $3,300 max for all debts
$3,300 − $500 existing debts = $2,800 available for housing
The binding constraint is the 28% rule at $2,567/month.
Step 3: Back out the home price
At 6.5% on a 30-year mortgage with 10% down:
- Subtract estimated taxes, insurance, PMI: ~$600/month
- Available for mortgage P&I: $2,567 − $600 = $1,967/month
- $1,967 supports a loan of approximately $310,000
- With $50,000 down (approximately 14%), that is a home price of roughly $360,000
Run your own affordability numbers
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How to Improve Your Home Affordability
Increase Your Down Payment
Every extra $10,000 in down payment reduces your loan (and monthly payment) and may eliminate or reduce PMI. Saving an extra $20,000 could lower your monthly payment by $150-$200.
Pay Off Existing Debt
Reducing your existing monthly debt obligations directly increases how much mortgage you qualify for under the 36% rule. Paying off a $300/month car loan effectively adds $300 to your available housing budget.
Improve Your Credit Score
Better credit scores qualify you for lower interest rates. The difference between a 680 and 760 credit score can mean 0.5-1.0% lower interest, which translates to $100-$200/month savings on a $350,000 mortgage.
Consider a 15-Year vs 30-Year Mortgage
A 15-year mortgage has higher monthly payments but typically comes with a lower interest rate (often 0.5-0.75% less). On a $320,000 loan, a 15-year mortgage at 5.75% costs $2,654/month vs $1,867/month for a 30-year at 6.5%. You pay $157,700 in total interest vs $352,120 — saving nearly $200,000.
Mistakes to Avoid
Buying the Maximum You Qualify For
Just because a lender approves you for a $450,000 mortgage does not mean you should borrow that much. Lenders do not account for your personal savings goals, lifestyle, childcare costs, or irregular expenses. Leave margin.
Forgetting Closing Costs
Closing costs typically run 2-5% of the home price. On a $400,000 home, that is $8,000-$20,000 due at closing. Budget for these on top of your down payment.
Ignoring Future Changes
Property taxes increase. Insurance premiums rise. Maintenance costs grow as the home ages. A payment that is comfortable today may feel tight in five years if your income does not keep pace.
Frequently Asked Questions
What is the 28/36 rule for buying a house?
The 28/36 rule says your monthly housing costs (mortgage payment, property taxes, insurance, PMI, and HOA) should not exceed 28% of your gross monthly income. Your total debt payments (housing costs plus car loans, student loans, credit cards, etc.) should not exceed 36% of gross monthly income. For example, with a $7,000/month gross income, your housing payment should stay under $1,960 and total debts under $2,520.
How much do I need for a down payment on a house?
The traditional recommendation is 20% to avoid PMI, but many loan programs accept much less. FHA loans require as little as 3.5% down, and conventional loans offer 3% down payment options. VA loans and USDA loans require 0% down for qualified borrowers. However, a smaller down payment means higher monthly payments and added PMI costs of $100-$300+/month.
What hidden costs of homeownership do most buyers miss?
Beyond the mortgage payment, homeowners pay property taxes (averaging 1.1% of home value nationally), homeowner’s insurance ($1,500-$3,000+/year), maintenance and repairs (budget 1-2% of home value per year), PMI if less than 20% down ($100-$300/month), and HOA fees if applicable ($200-$500+/month). These costs typically add $500 to $1,500 per month on top of the mortgage payment.