How Much House Can I Afford? Rules and Steps

The 28/36 rule is a starting point, not a limit. Lenders and locations differ.
Existing debts reduce the housing payment your income can support.
Interest rate and loan term change the loan size a given payment can cover.
Taxes, insurance and upkeep are part of the real monthly cost.

The 28/36 rule

The 28/36 rule is a widely used guideline for sizing a home budget. It has two parts:

28%: total housing costs should be no more than about 28% of your gross monthly income. Gross income is what you earn before taxes and deductions.
36%: all monthly debt payments together, including housing, should be no more than about 36% of gross monthly income.

Housing costs here mean the loan payment plus property taxes, home insurance and any regular association fees.

With a gross income of $6,000 a month, the rule gives:

Housing limit: $6,000 × 0.28 = $1,680.
Total debt limit: $6,000 × 0.36 = $2,160.

These percentages are rules of thumb. Lenders set their own limits, some loan types allow more, and a budget that works in one area may not work in another. Treat them as a first estimate.

Debt-to-income ratio

The debt-to-income ratio, or DTI, is your total monthly debt payments divided by your gross monthly income. Lenders use it to judge how much room you have for a new payment.

Debts usually counted include car loans, student loans, minimum card payments and other installment loans. Everyday costs such as groceries and utilities are not counted, even though they affect your real budget.

Suppose you already pay $500 a month toward other debts. With the $2,160 total limit above, the room left for housing is $2,160 - $500 = $1,660. That is lower than the $1,680 housing limit, so $1,660 becomes the working figure.

The lower of the two numbers is the one to use. The debt-to-income calculator works out your ratio from a list of payments.

Down payment

The down payment is the cash you pay up front. The loan covers the rest of the price. A larger down payment helps in three ways:

It lowers the amount borrowed, so the monthly payment is smaller.
It reduces the total interest paid over the loan.
It may help you qualify for a better rate or avoid extra charges, such as mortgage insurance, that some lenders add when the down payment is small.

Minimum down payments vary by lender and loan type. Buying also brings one-time costs, such as closing fees and moving expenses, so not all savings can go toward the down payment. Many people also keep a cash reserve for emergencies.

How rate and term change the budget

The same monthly payment supports a larger or smaller loan depending on the interest rate and the term, which is the length of the loan.

The table shows the approximate loan that a $1,300 monthly principal and interest payment can support. The rates are examples only.

Rate and term	Payment per $1,000 borrowed	Loan supported by $1,300
5%, 30 years	$5.37	About $242,000
6%, 30 years	$6.00	About $217,000
7%, 30 years	$6.65	About $195,000
6%, 15 years	$8.44	About $154,000

One percentage point of rate moves the loan size by more than $20,000 in this example. A shorter term lowers the loan a payment can support but cuts total interest sharply. The guide on how amortization works explains why.

Taxes, insurance and upkeep

The loan payment is only part of the cost of owning a home. A realistic budget also includes:

Property taxes: set locally and often based on the home's assessed value.
Home insurance: varies with location, home type and coverage.
Mortgage insurance: sometimes required when the down payment is small.
Association fees: common for condos and some neighborhoods.
Utilities: often higher than in a smaller rental.
Maintenance and repairs: roofs, heating, plumbing and appliances all wear out.

A common rule of thumb is to set aside about 1% of the home's value each year for upkeep. On a $250,000 home that is $2,500 a year, or about $208 a month. Older homes may need more.

Taxes and insurance differ widely from place to place, so use local figures when you can.

A step-by-step estimate

Here is the full method using the numbers above.

Find gross monthly income. $6,000.
Apply the 28% rule. $6,000 × 0.28 = $1,680.
Apply the 36% rule. $6,000 × 0.36 = $2,160, minus $500 of other debt = $1,660.
Take the lower figure. $1,660 is the housing budget.
Subtract taxes and insurance. With an estimate of $360 a month, $1,660 - $360 = $1,300 for principal and interest.
Convert the payment to a loan. At 6% over 30 years, $1,300 supports a loan of about $217,000.
Add the down payment. With $30,000 down, the estimated price is about $247,000.

This is an estimate of the upper end, not a target. Before relying on it, run a few checks:

Recalculate with a rate one percentage point higher, in case rates move before you buy.
Add the monthly upkeep allowance and any association fees to the housing budget.
Confirm you can still save for emergencies and retirement after the payment.
Think about expected changes, such as a new car loan, a change in income or a growing family.

Then test the result against your actual spending. If the payment would squeeze savings or other goals, a lower price may suit you better than the maximum the rules allow.

The home affordability calculator runs these steps for your own figures, and the mortgage calculator shows the payment for a specific price.

Try it with your own numbers

Frequently asked questions

What is the 28/36 rule?

It is a common guideline for home budgets. Housing costs should be about 28% or less of gross monthly income, and all debt payments together should be about 36% or less. It is a rule of thumb, not a legal limit. Lenders use their own thresholds, which can be higher or lower.

Should I use gross or net income?

The standard rules use gross income, which is pay before taxes and deductions, because that is what lenders usually measure. Your own budget runs on take-home pay, though. After estimating with gross income, check that the payment fits comfortably within what actually reaches your account each month.

How does my down payment affect what I can afford?

A larger down payment raises the price you can consider without raising the loan. It also lowers the monthly payment and total interest for a given price. A smaller down payment keeps more cash on hand but means a larger loan and, with some lenders, extra costs such as mortgage insurance.

Is the amount a lender approves the amount I should spend?

Not necessarily. An approval shows the most a lender is willing to lend based on income, debts and credit. It does not account for your savings goals, childcare, travel or other priorities. Many buyers choose a price below their approved maximum so the payment leaves room for the rest of their budget.

This guide is general education, not financial advice. Rules of thumb vary by lender, industry and country.