How Much House Can I Afford?
One of the first questions every home buyer asks is: “How much house can I afford?” The answer depends on your income, debts, down payment, and the interest rate you qualify for.
The 28/36 Rule
Most lenders follow the 28/36 rule when evaluating your mortgage application:
- Your monthly housing costs (PITI — Principal, Interest, Taxes & Insurance) should not exceed 28% of your gross monthly income
- Your total monthly debt payments (housing + car loans + student loans + credit cards) should not exceed 36% of your gross monthly income
Quick Calculation
If you earn $75,000 per year ($6,250/month gross):
- Maximum monthly PITI payment: $1,750 (28% of $6,250)
- Maximum total monthly debt: $2,250 (36% of $6,250)
If you already pay $400/month in car and student loan payments, your maximum PITI payment drops to $1,850 under the 36% rule.
What Salary Do You Need for Common Home Prices?
Here’s a rough guide based on 20% down, 6.5% interest rate, and a 30-year loan:
| Home Price | Down Payment | Approximate Monthly PITI | Income Needed |
|---|---|---|---|
| $200,000 | $40,000 | $1,250 | $53,500 |
| $300,000 | $60,000 | $1,800 | $77,100 |
| $400,000 | $80,000 | $2,350 | $100,700 |
| $500,000 | $100,000 | $2,900 | $124,300 |
| $600,000 | $120,000 | $3,450 | $147,900 |
These numbers include estimated property taxes and insurance. Your actual payment depends on your location — use our PITI calculator to get exact numbers for your situation.
Factors That Affect Affordability
Interest Rate
Even a small rate difference has a big impact. On a $300,000 loan:
- At 6.0%: $1,799/month (P&I only)
- At 6.5%: $1,896/month
- At 7.0%: $1,996/month
That 1% difference costs about $200/month or $71,000 over 30 years.
Down Payment
A larger down payment means a smaller loan and no PMI (Private Mortgage Insurance). PMI typically costs 0.5% to 1% of the loan amount per year and is required if your down payment is less than 20%.
Property Taxes and Insurance
These vary dramatically by location. Texas homeowners may pay 1.8% or more in property taxes, while Hawaii homeowners pay around 0.28%. Florida homeowners face some of the highest insurance premiums in the country. Always factor in your local costs — check your state’s calculator for local averages.
Debt-to-Income Ratio
Paying off existing debts before buying can significantly increase how much house you can afford. Every $300/month in debt payments you eliminate adds roughly $50,000 to your buying power.
Common Mistakes
- Only looking at the mortgage payment — Your PITI payment includes taxes and insurance, which can add hundreds per month. Always calculate the full PITI.
- Maxing out your budget — Just because you qualify for a certain amount doesn’t mean you should spend it. Leave room for savings, maintenance, and unexpected expenses.
- Forgetting closing costs — Budget 2-5% of the home price for closing costs on top of your down payment.
- Ignoring PMI — If you put less than 20% down, PMI adds to your monthly payment until you build enough equity.
Next Steps
The best way to know exactly what you can afford is to run the numbers through our mortgage calculator. Enter your local property tax rate and insurance costs to get an accurate monthly payment, then compare it against the 28/36 rule.
Affordability by Salary
- How much house on a $50K salary?
- How much house on a $75K salary?
- How much house on a $100K salary?
- How much house on a $150K salary?
Related
- What Is PITI? — understand your full monthly payment
- How Much Down Payment Do You Need?
- Property Tax Rates by State — see how location affects affordability