Buying a home is the largest financial commitment most people make, and the question of how much house you can afford is more nuanced than the maximum a lender will approve. Understanding how mortgage affordability is calculated — and the difference between what you can borrow and what you should borrow — is essential to avoiding becoming "house poor," where housing costs leave little room for anything else.
The 28/36 rule
The most widely used affordability guideline is the 28/36 rule. It states that you should spend no more than 28% of your gross monthly income on housing costs, and no more than 36% on total debt payments including housing.
On a $80,000 salary — about $6,667 gross per month — the 28% guideline allows roughly $1,867 for housing, and the 36% guideline allows $2,400 for all debt payments combined. Use our salary to hourly calculator to confirm your monthly gross figure, then apply these percentages to find your target housing budget.
What counts as housing cost
Housing cost in these calculations is not just your mortgage principal and interest. It includes the full "PITI": Principal, Interest, property Taxes, and Insurance. In many areas it also includes homeowners association (HOA) fees and private mortgage insurance (PMI) if your down payment is below 20%. People frequently underestimate affordability because they think only of the principal and interest, forgetting that taxes and insurance can add hundreds of dollars per month.
Debt-to-income ratio
Lenders evaluate your debt-to-income ratio (DTI) — your total monthly debt payments divided by your gross monthly income. The 36% figure in the 28/36 rule is a common DTI ceiling, though some loan programs allow higher ratios up to 43% or even higher in certain cases. Your existing debts — car loans, student loans, credit card minimums — directly reduce how much you can borrow for a home, because they consume part of your DTI allowance.
What lenders will approve vs what you should borrow
A critical distinction: the maximum a lender approves is not the amount you should necessarily borrow. Lenders calculate the maximum based on gross income and standard ratios, but they do not account for your specific lifestyle, savings goals, or other priorities. Borrowing the maximum often leaves people stretched thin, unable to save adequately or absorb unexpected costs. A conservative approach targets the lower end of what you qualify for.
The down payment factor
Your down payment significantly affects affordability. A larger down payment reduces the loan amount, lowers monthly payments, and — once you reach 20% down — eliminates the need for private mortgage insurance, which can save hundreds of dollars per month. Saving a larger down payment also demonstrates financial discipline to lenders and may secure a better interest rate.
How interest rates change everything
Interest rates dramatically affect how much home your salary can buy. A one-percentage-point change in the mortgage rate can change your monthly payment by hundreds of dollars on a typical loan, and therefore change the home price you can afford by tens of thousands of dollars. When rates are high, the same salary affords substantially less home than when rates are low — which is why timing and rate environment matter so much in home buying.
A worked example
Consider someone earning $80,000 with a $400 monthly car payment and $300 in student loan payments. Their gross monthly income is $6,667. The 36% DTI ceiling allows $2,400 in total debt payments. Subtracting the $700 in existing debt leaves $1,700 available for housing. That $1,700 must cover principal, interest, taxes, insurance, and any HOA fees. Depending on interest rates, property taxes, and insurance costs in their area, this might support a home price in the range of $250,000–$320,000 with a reasonable down payment — considerably less than a naive calculation based on salary alone might suggest.
Beyond the ratios: the full picture
Sound affordability analysis goes beyond lender ratios. Consider your emergency fund (buying a home should not deplete it entirely), your other financial goals like retirement savings, the costs of homeownership beyond the mortgage (maintenance typically runs 1–2% of home value per year), and your job stability. A home that fits the 28/36 rule but leaves you unable to save for retirement or handle a major repair is not truly affordable.
The bottom line
To calculate what you can afford, start with the 28/36 rule applied to your gross monthly income, account for the full PITI cost rather than just principal and interest, subtract existing debts from your DTI allowance, and factor in your down payment and the current interest rate environment. Then step back and consider the full picture of your finances. The goal is a home that fits comfortably within your life, not one that consumes it.
The pre-approval process
Before house hunting seriously, getting pre-approved by a lender gives you a concrete figure to work with and signals to sellers that you are a credible buyer. Pre-approval involves the lender reviewing your income, debts, credit score, and assets to determine how much they will lend. It is important to remember that the pre-approval amount is a maximum, not a recommendation. Many buyers wisely shop for homes priced below their pre-approval ceiling, preserving financial breathing room for savings, emergencies, and the ongoing costs of homeownership.
Credit score and interest rates
Your credit score significantly affects the interest rate you are offered, which in turn affects how much home you can afford. A higher credit score can secure a lower rate, reducing monthly payments and increasing your buying power for the same budget. Even a fraction of a percentage point difference in rate translates to meaningful monthly savings over a long loan. Improving your credit score before applying — by paying down balances and correcting errors — can be one of the most financially impactful steps in the home-buying process.
Total cost of ownership
Affordability extends well beyond the monthly mortgage payment. Homeownership brings costs that renting does not: maintenance and repairs (often estimated at 1–2% of home value annually), property taxes that can rise over time, homeowners insurance, and potential HOA fees. A home that fits your monthly payment budget but leaves no room for a major repair or rising costs is not truly affordable. Sound planning accounts for the full cost of ownership and maintains an emergency fund specifically for home-related expenses.