How Much House Can I Afford?

How lenders set your limit

Mortgage lenders use two ratios to decide how much they'll lend:

Front-end ratio (housing ratio): Your total housing payment — principal, interest, property taxes, homeowner's insurance, and PMI if applicable — divided by gross monthly income. Conventional lenders prefer this below 28%.

Back-end ratio (total DTI): All monthly debt payments (housing + car loans + student loans + credit cards minimum payments) divided by gross monthly income. Conventional lenders cap this at 43–45%; the best rates usually require DTI below 36%.

On a $100,000 gross annual income ($8,333/month), the 28% front-end limit puts your housing payment at roughly $2,333/month. At today's rates (~7%), that supports a mortgage of about $350,000. But that's the lender's limit, not the right number for your financial situation.

The costs most buyers undercount

The mortgage payment is only part of housing cost. Buyers who stretch to the lender's limit often get surprised by:

• Property taxes: 0.5–2.5% of home value per year depending on state and county. On a $400,000 home in a 1.5% tax area, that's $500/month.
• Homeowner's insurance: $100–$250/month for a typical home.
• PMI: Required if your down payment is under 20%. Typically 0.5–1.5% of the loan amount annually — $150–$450/month on a $360,000 loan.
• HOA fees: $0 to $1,000+/month for condos and planned communities.
• Maintenance: Budget 1% of home value annually for repairs. On a $400,000 home, that's $4,000/year ($333/month) on average.

A buyer looking at a $400,000 home with 10% down at 7% faces a P&I payment of ~$2,395, plus taxes, insurance, and PMI — easily $3,200–$3,500/month total before maintenance. Run those numbers through the home affordability calculator before you set your search price.

The 28/36 rule vs. what you can actually sustain

The 28/36 rule is a lender guideline, not a personal finance recommendation. Many financial advisors suggest keeping housing below 25% of take-home (not gross) pay, which is a more conservative and often more livable threshold.

If your gross income is $100,000 but you contribute 15% to a 401(k) and pay state income tax, your take-home might be $65,000. Twenty-five percent of that is $16,250/year — $1,354/month for total housing — significantly less than what a lender will approve.

Down payment and PMI

A 20% down payment eliminates PMI and reduces your loan balance, but it isn't always the right move. If saving to 20% would delay your purchase by 3–5 years in an appreciating market, buying with 10% and paying PMI temporarily may cost less than the foregone equity growth. PMI disappears once you reach 20% equity (you can request removal at 80% LTV; it cancels automatically at 78% under federal law).

Use the PMI removal timeline calculator to see exactly when PMI drops off and what paying extra principal does to that date.

Before you talk to a lender

Get pre-approval from at least two lenders — not just pre-qualification — so you know your actual rate and approved amount. Run the total payment (P&I + taxes + insurance + PMI) through the home affordability calculator with your real income and debts. If the monthly payment feels tight at current rates, model a scenario where rates stay high and appreciation is flat. Buy the house that's comfortable at today's rate, not the one that's comfortable only if rates drop.