How Much House Can I Afford? A Number-by-Number Guide
Two ceilings decide what you can buy — what your income supports and what your cash supports — and the lower one wins. The video works through both with a real budget; the written breakdown, with every threshold and formula, follows underneath.
Watch: the 28/36 rule applied to a real budget (5 min)
You can afford the lower of two ceilings: what your income supports and what your cash supports. Cap housing at 28% of gross monthly income and total debt at 36%, subtract property tax, insurance and PMI from that budget, then convert what is left into a loan. On $96,000 a year with $650 of other debt, that is about $298,000 at 10% down.
Key takeaways
- On $8,000 a month gross, the 28/36 rule allows $2,230 for housing once $650 of other debt is counted.
- Moving from 10% down to 20% down raises the ceiling by about $50,000 — half of it from killing PMI, not from the deposit.
- Every $1 of monthly debt you clear buys roughly $143 more house, but only while the 36% cap is what binds you.
- A rate move from 6.50% to 7.50% cuts what you can buy by about $23,700 on the same payment.
- Property tax swings the payment by $453 a month between a 0.5% and a 2.2% county on a $320,000 house.
- Total cash to close and keep reserves on a $298,000 purchase at 10% down: about $45,400.
- Which ceiling actually limits you?
- How does the 28/36 rule work?
- A worked example on $96,000 a year
- Why does a bigger down payment buy more house?
- How much cash do you need up front?
- What moves the ceiling most: rate, tax or debt?
- Should you borrow what the lender approves?
- What if renting still wins?
- A six-step checklist
- Terms, defined
- Frequently asked questions
- All the calculators used in this guide
Which ceiling actually limits you?
There are two independent limits on what you can buy, and they have nothing to do with each other.
- The income ceiling — the largest monthly payment your income and existing debts will support, converted into a price.
- The cash ceiling — the largest price your savings can cover once you add the down payment, closing costs and a reserve.
Your affordable price is the smaller of the two. First-time buyers are usually limited by cash; move-up buyers with equity are usually limited by income. Work out both before you look at a listing.
How does the 28/36 rule work?
The rule is two caps applied to gross monthly income — income before tax, not take-home pay:
- Front-end, 28% — housing alone. Principal, interest, property tax, homeowners insurance, PMI and HOA dues, together known as PITI.
- Back-end, 36% — housing plus every other monthly debt payment: car loans, student loans, minimum credit-card payments, personal loans, child support.
Apply both and keep whichever gives the smaller housing figure. Utilities, groceries, childcare and insurance premiums other than homeowners are not in the ratio, which is exactly why a loan can be approved and still be unaffordable. The Debt to Income Ratio Calculator works out where you sit today.
One caution on the income side: lenders count only documented income. Bonus, commission, overtime and self-employment pay normally need a two-year history and get averaged. The Paycheck Calculator (Take-Home Pay) also shows how little of that gross figure reaches your account — the sanity check the 28/36 rule does not give you.
A worked example on $96,000 a year
One household, all the way through. Assumptions, all illustrative:
- Gross income $8,000 a month ($96,000 a year), combined.
- Other debt $650 a month — a $450 student loan and a $200 car payment.
- Example mortgage rate 6.50%, 30-year fixed.
- Property tax 1.1% of value a year, homeowners insurance $150 a month, no HOA.
- PMI at 0.5% of the loan a year while the down payment is under 20%.
Step one, the payment budget:
The back-end cap is $10 tighter, so $2,230 is the budget. That is total PITI, not the mortgage payment — and this is where most mental arithmetic goes wrong. Here is how the $2,230 splits at 10% down:
| Component | Monthly | Share of budget | What it depends on |
|---|---|---|---|
| Principal & interest | $1,695.11 | 76% | Loan amount, rate, term |
| Property tax | $273.15 | 12% | Home value × local rate |
| Homeowners insurance | $150.00 | 7% | Location, rebuild cost |
| PMI | $111.74 | 5% | Loan balance, LTV, credit |
| Total PITI | $2,230.00 | 100% | — |
Only $1,695.11 of the $2,230 services the loan. Reverse the payment formula at 6.50% over 360 months and that supports a balance of about $268,184. Add the 10% deposit and the purchase price lands at roughly $298,000 — about 3.1 times annual income. The resulting ratios are a 27.9% front end and a 36.0% back end, comfortably inside guideline.
Why does a bigger down payment buy more house?
Because a larger deposit does two things at once: it adds to the price directly, and past 20% it deletes PMI, which hands the freed payment back to the loan. Same $2,230 budget, four deposits:
| Down payment | Max price | Cash deposit | Loan amount | P&I | PMI |
|---|---|---|---|---|---|
| 3% | $279,124 | $8,374 | $270,750 | $1,711.32 | $112.81 |
| 5% | $284,264 | $14,213 | $270,051 | $1,706.90 | $112.52 |
| 10% | $297,982 | $29,798 | $268,184 | $1,695.11 | $111.74 |
| 20% | $348,221 | $69,644 | $278,577 | $1,760.80 | $0.00 |
Read the 10% and 20% rows together. The extra deposit is $39,846, but the ceiling rises by $50,239. The difference is PMI: removing $111.74 a month lets the loan itself grow by about $10,000 on an unchanged payment — a stronger argument for reaching 20% than the usual "you avoid a fee" framing.
It also explains why 3% down buys almost as much house as 10% down on the same payment — $279,124 against $297,982. Low-deposit loans are constrained by the payment, not the deposit. Size the deposit with the Down Payment Calculator and price the insurance with the PMI Calculator, which also shows when PMI can be cancelled.
How much cash do you need up front?
Three separate amounts, and only the first one gets talked about:
- Down payment — on $297,982 at 10%, that is $29,798.
- Closing costs — roughly 2% to 5% of the price. At 3%, $8,939. Estimate yours with the Closing Costs Calculator.
- Reserves — three months of PITI, $6,690 here. Many programmes verify them, and you need them regardless: a failed water heater does not wait for you to rebuild savings.
Now invert it. Suppose you have exactly $45,000 saved and it has to cover all three items. What price can each deposit level reach?
| Down payment | Price the cash allows | Price the income allows | Binding limit |
|---|---|---|---|
| 3% | $540,946 | $279,124 | Income |
| 5% | $436,973 | $284,264 | Income |
| 10% | $295,149 | $297,982 | Balanced — both near $296,000 |
| 20% | $179,695 | $348,221 | Cash |
This is the trade-off nobody puts in a headline. With $45,000 saved, the best outcome is around 10% down, where the two ceilings meet near $296,000. Insisting on 20% cuts the affordable price to $179,695 — the PMI saving is real but irrelevant when the cash is not there. Waiting to save more changes the answer; the Emergency Fund Calculator sets what must stay untouched while you do, since reserves are not part of the deposit.
What moves the ceiling most: rate, tax or debt?
All three, and by more than most buyers expect. Each table below holds everything else at the base case: $2,230 budget, 10% down, 6.50%, 1.1% tax.
Interest rate
| Example rate | Max price | Change vs 6.50% |
|---|---|---|
| 5.50% | $324,910 | +$26,928 |
| 6.00% | $311,022 | +$13,040 |
| 6.50% | $297,982 | — |
| 7.00% | $285,738 | −$12,244 |
| 7.50% | $274,240 | −$23,742 |
A full point of rate is worth roughly $24,000 of purchase price here — close to 8%. That is why a pre-approval expires, and why an approval letter from three months ago is not a budget.
Other monthly debt
| Other debt payments | PITI budget | Cap that binds | Max price |
|---|---|---|---|
| $0 | $2,240 | 28% front | $299,415 |
| $400 | $2,240 | 28% front | $299,415 |
| $650 | $2,230 | 36% back | $297,982 |
| $900 | $1,980 | 36% back | $262,167 |
| $1,200 | $1,680 | 36% back | $219,189 |
| $1,600 | $1,280 | 36% back | $161,885 |
Notice the flat top of the table. Below about $640 of other debt on this income the 28% cap is what limits you, and clearing more debt buys nothing. Above it every dollar counts: dropping from $1,200 to $650 lifts the ceiling by $78,793 — roughly $143 of price per $1 of monthly payment removed. A $500 car payment is a $71,000 house. Model the payoff order with the Debt Payoff Calculator before you shop.
Property tax rate
| Annual tax rate | Monthly tax on a $320,000 home | Total PITI |
|---|---|---|
| 0.5% | $133.33 | $2,223.69 |
| 1.1% | $293.33 | $2,383.69 |
| 1.8% | $480.00 | $2,570.36 |
| 2.2% | $586.67 | $2,677.02 |
A $453 monthly spread on the identical house. Property tax is charged on assessed value, not on the loan, so it never shrinks as you pay the mortgage down — and it is usually reassessed upward. Use your county's rate from the Property Tax Calculator, not a national average — and when comparing neighbourhoods, check whether a low tax rate is simply being priced back into the house.
Loan term
Term looks like a saving and behaves like a cost at purchase time. On the same $2,230 budget, a 15-year loan supports only $227,780 against $297,982 for a 30-year — $70,202 less house, because the faster payoff is bought with payment capacity. Take the 30-year loan and prepay voluntarily instead; check any variant with the Mortgage Calculator.
Should you borrow what the lender approves?
Approval limits sit well above the 28/36 guideline. Many conventional and government-backed programmes accept back-end ratios of 43%, and some go to 50% with compensating factors such as large reserves or a high credit score. Same household, four caps:
| Back-end DTI cap | PITI budget | Max price | Extra house vs 36% | Extra cost per month |
|---|---|---|---|---|
| 28% (housing only) | $2,240 | $299,415 | — | — |
| 36% — guideline | $2,230 | $297,982 | — | — |
| 43% — common maximum | $2,790 | $378,208 | +$80,226 | +$560 |
| 50% — stretch approval | $3,350 | $458,434 | +$160,452 | +$1,120 |
The extra $80,000 of house at 43% is real, and so is the extra $560 a month. It comes from somewhere the ratio does not see: retirement contributions, maintenance, childcare, the emergency fund. At 50% DTI this household is roughly $1,120 a month poorer than the guideline version, on $8,000 of gross income — before a single repair.
The middle path: learn the lender's ceiling, then set your own search limit at the 28/36 figure and treat anything above it as needing a specific written reason — a signed raise, a debt about to disappear, a lodger.
What if renting still wins?
Sometimes the honest answer to "how much house can I afford?" is "none yet". Two checks worth running before you commit:
- Holding period. Buying and selling together cost roughly 8% to 10% of the price in agent fees, closing costs and transfer taxes, and a short stay rarely earns that back. The Rent vs Buy Calculator compares total cost over the years you expect to stay.
- What renting costs now. The 28% guideline applies to rent too; the Rent Affordability Calculator sets that limit. If affordable rent is comfortable and an affordable mortgage is not, waiting a year to build the deposit is the move that raised the ceiling by $50,000 in the table above.
A six-step checklist
- Gross monthly income, household, documented only. Two-year history for variable pay.
- Both caps. 28% of gross for housing; 36% of gross minus other debt payments. Keep the smaller.
- Strip out taxes, insurance, PMI and HOA using your county's actual rate, not an average.
- Convert the remaining principal and interest into a loan at your quoted rate and term, then add the deposit.
- Test the cash ceiling separately: deposit + closing costs + three months of reserves.
- Take the lower number, then subtract your own margin. The ceiling is a limit, not a target.
Terms, defined
- PITI
- Principal, interest, taxes and insurance — the four parts of a monthly housing payment. PMI and HOA dues are counted alongside it in every affordability ratio.
- Front-end DTI
- Housing payment divided by gross monthly income. The 28 in the 28/36 rule.
- Back-end DTI
- Housing payment plus all other monthly debt payments, divided by gross monthly income. The 36. This is the number underwriters care most about.
- PMI (private mortgage insurance)
- Insurance protecting the lender when the deposit is under 20% on a conventional loan. Typically 0.3% to 1.5% of the balance a year, cancellable once enough equity is built.
- LTV (loan-to-value)
- Loan balance divided by property value. A 10% deposit is a 90% LTV. Drives both your rate and whether PMI applies.
- Escrow
- An account the servicer uses to collect property tax and homeowners insurance monthly and pay them when due. Why your payment can rise without your rate changing.
- Reserves
- Liquid savings left after closing, measured in months of PITI. Required by some loan programmes and a good idea in all of them.
- Pre-approval
- A conditional lender commitment based on verified income, debts and credit. A ceiling, not a recommendation, and it expires — usually in 60 to 90 days.
Frequently asked questions
How much house can I afford on a $96,000 salary?
About $298,000 in the example above: $8,000 a month gross, $650 of other debt, 10% down, an example rate of 6.50%, and a 1.1% property tax rate. The 28/36 rule allows $2,230 a month of PITI, of which $1,695 services the loan. With 20% down and no PMI, the same payment reaches about $348,000.
What is the 28/36 rule?
Two caps at once: housing under 28% of gross monthly income, and housing plus all other debt payments under 36%. On $8,000 a month that is $2,240 and $2,880. Whichever cap yields the smaller housing figure is the binding one — here the back end, at $2,230.
Does a bigger down payment let me buy a more expensive house?
Yes, and by more than the deposit itself. Going from 10% to 20% down on an unchanged $2,230 budget raises the ceiling from $297,982 to $348,221. Roughly $40,000 of that gain is the extra cash; the remaining $10,000 comes from eliminating $111.74 a month of PMI.
How much does paying off debt increase how much house I can afford?
About $143 of price per $1 of monthly payment cleared, while the 36% cap binds. Cutting other debt from $1,200 to $650 a month lifts the ceiling from $219,189 to $297,982. Below roughly $640 of other debt the 28% cap takes over and further payoffs stop raising the ceiling.
Should I borrow the maximum a lender approves?
Rarely. A 43% back-end approval on this income allows $2,790 a month and a $378,208 price rather than $297,982 — $80,226 more house for $560 a month that has to come out of retirement saving, repairs and reserves. Know the ceiling; shop below it.
How much cash do I need to buy a house?
Down payment, closing costs of about 2% to 5%, and three months of payments in reserve. On a $297,982 purchase at 10% down: $29,798 + $8,939 + $6,690, or roughly $45,400. Reserves are checked by many lenders and should not be spent at closing.
How does the property tax rate change what I can afford?
Substantially, because it is charged on the home's value rather than the loan. On a $320,000 house, 0.5% adds $133 a month and 2.2% adds $587 — a $453 gap that pushes the affordable price thousands of dollars apart between counties. Always use your local rate.
Is it better to rent or buy if the numbers are tight?
If the payment only works by draining reserves, renting is the stronger position. Purchase and sale together cost roughly 8% to 10% of the price, so a short holding period rarely recovers them. Compare total cost over the years you genuinely expect to stay put, not over 30.
All the calculators used in this guide
Authoritative sources
- Prepare to shop for a mortgage — Consumer Financial Protection Bureau
- What is a debt-to-income ratio? — CFPB
- What is private mortgage insurance? — CFPB
- Primary Mortgage Market Survey — Freddie Mac
- Debt-to-income ratio — Wikipedia
Every rate, tax rate, insurance premium and price in this guide is illustrative and exists to demonstrate the calculation method. They are not quotes and do not reflect any lender's or county's current figures. This article is educational and is not financial, tax or legal advice. Confirm your own numbers with a lender's Loan Estimate and your county assessor before making a decision.