How Much House Can I Afford? (The 28/36 Rule Explained)

"How much house can I afford?" is the most-searched mortgage question on the internet. The answer most people give themselves is wrong by a wide margin. Banks will pre-approve you for a number that leaves you "house poor" — technically able to pay the mortgage, unable to afford anything else. The right answer depends on three numbers your lender won't ask about: your real monthly budget, your emergency fund, and the kind of life you want to live in this house.

The short answer

A defensible rule of thumb: total housing cost should be no more than 28% of your gross monthly income, and total debt payments no more than 36%. This is the 28/36 rule, and it's the framework most CFPs use when clients ask the same question.

On a $100,000 annual gross income ($8,333/month):

• Max housing cost: $8,333 × 0.28 = $2,333/month
• Max total debt: $8,333 × 0.36 = $3,000/month

That $2,333 is the full PITI — Principal, Interest, Taxes, and Insurance — not just the mortgage payment. We'll break that out below.

To see what loan size produces a $2,333/month P&I payment at current rates, use our mortgage calculator. At 7% interest over 30 years, that monthly payment corresponds to roughly a $350,000 loan. Add a 20% down payment and you can afford a ~$437,500 home — but that's the upper bound, not the target.

What the bank actually checks

Lenders use two ratios:

Front-end DTI (Debt-to-Income). Your proposed housing cost ÷ your gross monthly income. Lenders typically cap this at 28–31% for conventional loans, 31% for FHA, and up to 36–43% in stretch cases.

Back-end DTI. All your monthly debt payments (housing + cars + student loans + minimum credit-card payments) ÷ gross income. Conventional loans cap at 36–43%; FHA allows up to 50% with compensating factors.

The bank's math gives you a maximum — the amount they're willing to lend without obvious blow-up risk. It's not the amount you should take. Banks have been pre-approving people at the 43% back-end DTI cap for years. That cap is "the highest number where most people don't default within 5 years." It's not "the level where you'll be comfortable."

PITI: the four pieces of your monthly housing cost

The mortgage payment on a loan calculator is just principal and interest. Your real monthly housing bill is bigger.

P — Principal. The portion of your monthly payment that reduces the loan balance.

I — Interest. What the lender charges you for the loan. In year 1 of a 30-year mortgage, this is the majority of your payment.

T — Property tax. Set by your county. Varies enormously:

| State | Effective property tax rate | | --- | --- | | Hawaii | 0.28% | | Alabama | 0.41% | | California | 0.75% | | Texas | 1.69% | | Illinois | 2.08% | | New Jersey | 2.23% |

On a $400,000 home in New Jersey, that's $8,920/year — about $743/month added to your housing cost. On the same house in Hawaii, $93/month. State and county matter a lot.

I — Homeowner's insurance. Typically 0.25–1% of home value per year. A $400,000 home runs $100–$330/month depending on the state and exposure to wildfires, hurricanes, or flooding.

Plus, sometimes:

PMI — Private Mortgage Insurance. Required by most lenders if your down payment is less than 20%. Usually 0.5–1.5% of the loan amount per year. On a $320,000 loan, that's $133–$400/month.

HOA fees. For condos and HOA communities. $100–$800/month is typical.

Worked example: middle-income, mid-market home

Household income: $90,000 gross ($7,500/month).

Using 28% front-end DTI: max housing cost = $2,100/month.

| Component | Amount | | --- | --- | | P&I on a $290,000 loan at 7%, 30 years | $1,930 | | Property tax (1.0% of $362,500 home) | $302 | | Homeowner's insurance ($1,500/year) | $125 | | Total PITI | $2,357 |

We're already $250 over the 28% threshold and we haven't bought any furniture. Stress-test: drop the loan to $240,000 (home price $300,000 with 20% down). New PITI: $1,597 P&I + $250 tax + $100 insurance = $1,947/month. Now we're inside the rule with room to breathe.

To find your specific number, run the math in our mortgage calculator — adjust home price, down payment, rate, and term until the monthly stays within 28% of your gross.

The down payment question

The conventional answer is 20% down. There are real reasons for this:

1. No PMI. Loans above 80% LTV (loan-to-value) usually require PMI, which adds 0.5–1.5% per year to your effective rate.
2. Lower monthly. Bigger down payment means smaller loan means smaller monthly payment.
3. Better rate. Most lenders price loans with a "rate sheet" — putting more down often qualifies you for a slightly lower interest rate.
4. Equity cushion. If home prices fall 10% and you put 5% down, you're underwater. If you put 20% down, you have a buffer.

But 20% on a $400,000 home is $80,000. Saving that takes years. The alternatives:

• FHA loan: 3.5% down, but with PMI for the life of the loan and a 1.75% upfront mortgage insurance premium.
• Conventional 5% or 10% down: PMI required until you reach 20% equity, then it falls off.
• VA loan: 0% down for eligible service members. No PMI.
• First-time buyer programs: many states have down payment assistance up to $20,000 for first-time buyers.

The math: should you wait years to save 20%, or buy now with 10% down and pay PMI? It depends on (1) home price appreciation in your area, (2) how much PMI adds to your effective monthly, (3) what else you'd do with the cash. If you expect 5%+ home appreciation per year, waiting to save 20% loses more than PMI costs. If prices are flat or falling, waiting is fine.

What the bank's "max approval" hides

Banks pre-approve based on income, credit score, and existing debt. They don't ask about:

• Emergency fund. A 6-month emergency fund is non-negotiable for homeowners. Furnace replacement: $5–8k. New roof: $15–25k. HVAC: $7–12k. These aren't theoretical.
• Retirement contributions. Buying a house shouldn't stop you contributing 15% to retirement. If the mortgage forces that down to 5%, the house is too expensive.
• Discretionary income. What's left after groceries, gas, utilities, childcare, insurance, retirement, and the mortgage? If the answer is "near zero," you can't afford this house.
• One-income scenarios. Can you make the mortgage if one earner is laid off for 6 months? If not, you're carrying more risk than the bank cares about.

This is the gap between "approved for $500k" and "comfortable owning a $400k house." The honest test: write down your full monthly budget at the proposed home cost. If anything has to come out — retirement contribution, dining out, vacation, savings — to make it work, the house is too expensive.

The down payment savings math

If you're not house-shopping yet but want to know how long it'll take to save the down payment, the compound interest calculator handles it. Plug in your current savings, your monthly contribution, your expected interest rate, and the target. Or use the SIP calculator for a recurring savings plan.

A realistic example: aiming for an $80,000 down payment on a $400,000 home. Starting from $0, contributing $1,200/month at 4.5% APY in a high-yield savings account: about 5 years 3 months. If you have $20,000 saved already: about 4 years. The early years matter — the time isn't going to compress.

Five rules to avoid being house-poor

After 50 mortgages and a decade of clients regretting them, the patterns are clear.

1. Stay under 28% gross income on PITI. Banks will approve higher. Don't.

2. Keep a 6-month emergency fund AFTER the down payment. If buying drains your reserves to zero, you're one furnace away from a payday loan.

3. Pretend the mortgage is your real monthly housing cost — for 6 months — before signing. Rent + savings = mortgage + maintenance reserve. If you can't sustain it, the actual mortgage won't be sustainable either.

4. Buy for 5+ years. Closing costs + agent fees + maintenance mean homeownership rarely beats renting until year 5. If you might move in 3 years, rent.

5. Don't strip your 401k match to afford a house. Free employer match compounds for decades. Skipping it to afford a bigger house is one of the worst financial decisions retail buyers make.

Quick affordability table

Reference table for typical gross-income bands at the 28% threshold, assuming 1% property tax, 0.4% insurance, and a 7% 30-year mortgage with 20% down:

| Gross income | Max PITI (28%) | Max P&I | Max loan | Max home price (20% down) | | --- | --- | --- | --- | --- | | $60,000 | $1,400 | ~$1,100 | $165,000 | ~$206,000 | | $80,000 | $1,867 | ~$1,460 | $219,000 | ~$274,000 | | $100,000 | $2,333 | ~$1,820 | $273,000 | ~$341,000 | | $125,000 | $2,917 | ~$2,275 | $342,000 | ~$427,000 | | $150,000 | $3,500 | ~$2,730 | $410,000 | ~$512,000 | | $200,000 | $4,667 | ~$3,640 | $547,000 | ~$684,000 |

Rates above 7% lower these numbers; below 5% raises them significantly. Property taxes above 1.5% (much of TX, NJ, IL) reduce affordable price by 10–15%.

For your actual situation, the mortgage calculator will give you the exact monthly P&I for any loan size, rate, and term. The math is precise. The judgment about how much to actually borrow is the part that matters.

What this calculator handles

Our mortgage calculator computes monthly principal and interest, total lifetime interest, and a balance chart over the life of the loan. It doesn't include property tax, insurance, or PMI — you'll add those separately. For comparing loan options (15-year vs 30-year, different rates), the loan EMI calculator works for any amortising loan structure.

Buying a house is the largest financial decision most people will ever make. The bank's job is to approve you for the largest number that doesn't immediately default. Your job is to take the smallest number that fits the life you want. The gap between those two answers is usually $100,000+ of unnecessary lifetime cost.

The right house is the one you can still afford if everything in your life changes — except the mortgage payment.