"How much house can I afford?" is usually the first question in any home search, and the answer from a lender can be very different from what feels comfortable month to month. This guide explains the rule lenders use, works through a real example, and shows which levers change your budget the most.
The 28/36 rule
Most US lenders start with two debt-to-income (DTI) limits, both measured against your gross (pre-tax) monthly income:
- 28% front-end ratio: your total housing payment (principal, interest, property tax, homeowners insurance, plus any PMI and HOA fees) should stay below 28% of gross income.
- 36% back-end ratio: housing plus all other monthly debt payments (car loan, student loans, credit card minimums) should stay below 36%.
Your maximum housing payment is whichever limit is lower. Some loan programs allow higher ratios, but staying within 28/36 leaves room for savings, repairs and the unexpected.
A worked example
Say your household earns $100,000 a year ($8,333 a month gross) and pays $400 a month toward a car loan. We assume a 6.5% 30-year fixed rate, 1.1% annual property tax and $1,500 a year for insurance.
| Step | Calculation | Result |
|---|---|---|
| Front-end limit | 28% × $8,333 | $2,333 |
| Back-end limit | 36% × $8,333 − $400 debts | $2,600 |
| Maximum housing payment | The lower of the two | $2,333 |
Working backwards from a $2,333 monthly payment gives these approximate home prices:
| Scenario | Home price | Payment breakdown (per month) |
|---|---|---|
| 20% down, 6.5% | ≈ $370,000 | $1,869 P&I + $339 tax + $125 insurance |
| 10% down, 6.5% | ≈ $316,000 | $1,800 P&I + $290 tax + $125 insurance + $119 PMI |
| 20% down, 7.5% | ≈ $339,000 | $1,897 P&I + $311 tax + $125 insurance |
| 20% down, $1,000/mo other debts | ≈ $314,000 | Back-end limit drops the payment cap to $2,000 |
Notice how much the answer moves: a smaller down payment, a 1-point higher rate or an extra $600 of monthly debt each cut the budget by $30,000–$56,000.
What changes your budget the most
- Other debts. Paying off a car loan or credit card before you apply can raise your price range more than a pay rise.
- Interest rate. Improving your credit score and comparing several lenders can lower your rate.
- Down payment. Reaching 20% removes PMI and lowers the loan amount — see our guide to PMI and how to avoid it.
- Property tax and HOA fees. They vary hugely by location; a high-tax area can cost as much each month as a pricier home elsewhere.
What lenders don't count (but you should)
- Maintenance: a common rule of thumb is to budget 1–2% of the home's value each year.
- Utilities and commuting — often higher in a bigger or more distant home.
- Closing costs, typically a few percent of the price, paid on top of the down payment.
- An emergency fund: keep three to six months of expenses after closing. Our savings goal calculator can help you plan it.
Outside the US
UK and European lenders usually focus on loan-to-income multiples (often around 4–4.5× income in the UK) and affordability stress tests rather than the 28/36 rule. The monthly repayment maths is the same, though, so you can still use the calculator below — just set PMI to zero and switch the currency in the header.
How to find your number
- Work out 28% of your gross monthly income, and 36% minus your other debt payments. Take the lower figure.
- Enter different home prices into the mortgage calculator until the total monthly payment matches that figure.
- Then sanity-check it against your real take-home budget — the lender's maximum is a ceiling, not a target.