What a lender will approve and what you can comfortably afford are two very different numbers. Lenders approve the maximum they’re willing to risk. You have to live with the payment.
Here’s how to figure out your real number – not just the one that gets you approved.
The Rule of Thumb That Actually Works
Most people can afford a home priced at roughly 3-4 times their annual gross income, assuming moderate debt, decent credit, and at least 5% down.
- $60,000/year income → $180,000-$240,000 home
- $100,000/year income → $300,000-$400,000 home
- $150,000/year income → $450,000-$600,000 home
This is a starting point, not a final answer. Your debt load, down payment, local property taxes, and interest rate all shift the number significantly.
The 28/36 Rule – How Lenders Think About It
The 28/36 rule suggests no more than 28% of your gross monthly income should go toward housing expenses, and no more than 36% toward total monthly debt.
Housing expenses include: mortgage principal and interest, property taxes, homeowners insurance, and HOA fees if applicable.
Total debt includes all of the above plus car payments, student loans, credit card minimums, and any other monthly debt obligations.
The math in practice:
If your household earns $8,000/month before taxes:
- Maximum housing payment: $2,240 (28%)
- Maximum total debt including housing: $2,880 (36%)
- If you already pay $600/month in car and student loans, your maximum mortgage payment drops to $2,280
Run this calculation with your actual numbers before you talk to a lender. It tells you what’s comfortable – not just what’s approved.
What Your Monthly Payment Actually Includes
Most people focus on the mortgage payment. The real monthly cost of homeownership is significantly higher:
PITI – the four components of a standard mortgage payment:
- Principal – paying down the loan balance
- Interest – the lender’s fee for the money
- Taxes – property taxes, collected monthly and held in escrow
- Insurance – homeowners insurance, also escrowed
On a $400,000 home with 10% down at 7% interest, principal and interest alone are roughly $2,395/month. Add property taxes (varies widely by state and county – average around $300-500/month on a $400,000 home) and insurance ($150-200/month) and you’re looking at $2,845-$3,095/month before utilities or maintenance.
Budget 1-2% of your home’s value annually for maintenance. On a $400,000 home that’s $4,000-$8,000 per year – $333-$667/month.
The full picture on a $400,000 purchase: plan for $3,200-$3,800/month in true housing costs. That’s the number to test against the 28% rule, not just the mortgage payment.
How Down Payment Affects Affordability
The size of your down payment affects your monthly payment, your loan eligibility, and whether you pay PMI.
| Down Payment | Amount (on $350k home) | Monthly PMI | Notes |
|---|---|---|---|
| 3% | $10,500 | ~$175/mo | Conventional minimum |
| 3.5% | $12,250 | ~$170/mo | FHA minimum |
| 10% | $35,000 | ~$90/mo | PMI reduces |
| 20% | $70,000 | $0 | PMI eliminated |
PMI is a fee charged on many conventional loans when the down payment is under 20%. It increases your monthly payment until you reach a required level of home equity. PMI typically costs 0.5-1.5% of the loan amount annually – on a $315,000 loan that’s $1,575-$4,725/year, or $131-$394/month.
Putting 20% down eliminates PMI and meaningfully reduces your monthly payment – but tying up that much cash isn’t always the right call. Weigh the PMI cost against the opportunity cost of not investing that money elsewhere.
Interest Rate Impact – This Is Huge
Small rate differences have enormous long-term impact. On a $350,000 mortgage:
| Rate | Monthly Payment | Total Interest Over 30 Years |
|---|---|---|
| 6.5% | $2,213 | $447,000 |
| 7.0% | $2,329 | $488,000 |
| 7.5% | $2,447 | $531,000 |
That’s an $84,000 difference between 6.5% and 7.5% – on the same house. Shop around with at least three lenders or a mortgage broker to increase your chances of getting a low rate. A few hours of comparison shopping is worth more than almost any other step in the process.
Use Bankrate to compare current mortgage rates across multiple lenders in your area.
The Honest Affordability Test
Beyond the math, ask yourself these questions honestly:
After the mortgage payment, taxes, insurance, and maintenance – can I still save for retirement? If the answer is no, the house is too expensive. Homeownership is a good financial decision but not at the expense of retirement savings.
What happens if one income disappears? If you have two incomes and the math only works with both, you’re exposed. Job loss, illness, or a family change can make an affordable home suddenly unaffordable.
Am I stretching because the market is competitive? Just because you qualify for a certain loan amount doesn’t mean the monthly payment will feel comfortable once additional expenses are factored in. The pressure of a hot market can push buyers to overcommit. The house that stretches your budget to the limit is a house that owns you.
A Practical Starting Point
Use Zillow’s affordability calculator or Redfin’s to plug in your real numbers – income, debts, down payment, and local tax rates. These tools give a more accurate picture than any rule of thumb.
Then subtract 10-15% from whatever number you get. That’s your comfortable budget. Leave yourself room for the unexpected – because homeownership always has some.
Related: How to Buy Your First House – A Step-by-Step Guide for 2026