How Much House Can I Afford? How Lenders Actually Do the Math
Key takeaways
- To answer how much house can I afford, lenders use the 28/36 rule: housing costs at or under 28% of gross monthly income, and all monthly debts at or under 36%.
- On an $80,000 salary, 28% allows $1,867/month for housing — but $800 in existing debts caps you at $1,600, because the lower of the two limits binds.
- On a $400,000 home at 6.5%, 20% down costs $2,023/month in principal and interest, while 3.5% down costs $2,440 plus about $175/month in PMI — a $592 monthly gap.
- Budget roughly $850/month beyond principal and interest for property taxes, insurance, and maintenance on a $400,000 home.
“How much house can I afford?” is the question every buyer asks first — and the one most answered with guesswork. Lenders don’t guess. They run two ratios on your income and debts, and the smaller result sets your ceiling. Once you know the math, you can price your search before you ever talk to a bank.
This guide walks through the 28/36 rule with a full worked example, shows how your down payment changes the monthly bill, and lists the costs buyers always forget. To skip straight to your own numbers, use our free house affordability calculator.
What is the 28/36 rule?
The 28/36 rule is the lending industry’s standard affordability screen. It has two parts. The front-end ratio says your total housing cost — principal, interest, property taxes, and homeowners insurance (together called PITI), plus HOA dues if any — should stay at or under 28% of your gross monthly income. The back-end ratio says all your monthly debt payments, housing included, should stay at or under 36% of gross monthly income.
Your maximum is whichever limit is lower. That’s the part most calculators gloss over: a great salary with heavy car and student-loan payments can still cap your housing budget hard. For a deeper look at the second ratio, see our guide to a good debt-to-income ratio for a mortgage.
How much house can I afford on $80,000 a year?
Let’s run it step by step. $80,000 ÷ 12 = $6,667 in gross monthly income.
- Front-end limit: $6,667 × 0.28 = $1,867/month maximum for PITI.
- Back-end limit: $6,667 × 0.36 = $2,400/month for all debts combined.
- Subtract existing debts: with $500/month in student loans and a $300/month car payment ($800 total), your housing ceiling is $2,400 − $800 = $1,600/month.
The binding limit is $1,600 — the back-end ratio, not the front-end. At 6.5% interest on a 30-year loan, $1,600/month in principal and interest supports roughly a $253,000 loan, meaning a home price around $290,000–$315,000 depending on your down payment and local taxes. (That loan figure comes straight from the mortgage formula; check it with our mortgage calculator.)
The lesson: paying down that $800 in monthly debts before house-hunting would raise your ceiling back toward $1,867 — often the fastest way to “afford more house” without earning more. Lenders verify these numbers with pay stubs, tax returns, and bank statements, so use your documented pre-tax income, not optimistic estimates.
How does my down payment change my monthly payment?
Take a $400,000 home at 6.5% on a 30-year fixed loan:
| Down payment | Loan amount | Principal & interest | PMI (approx.) | Total/mo |
|---|---|---|---|---|
| 20% ($80,000) | $320,000 | $2,023 | $0 | $2,023 |
| 10% ($40,000) | $360,000 | $2,275 | ~$150 | ~$2,425 |
| 3.5% ($14,000) | $386,000 | $2,440 | ~$175 | ~$2,615 |
Two things jump out. First, PMI (private mortgage insurance, required below 20% down) adds real money — about $175/month here, roughly 0.54% of the loan per year. Second, the gap between 20% and 3.5% down is $592 a month, or over $7,100 a year, for the same house.
That doesn’t mean waiting years to save 20% is always right — prices and rates move while you save. But go in with eyes open: a small down payment buys you the house sooner at a meaningfully higher monthly cost. One consolation: PMI isn’t forever. On a conventional loan, you can request cancellation once you hit 20% equity (around 22% it drops automatically), and a refinance or rising home values can get you there sooner than the amortization schedule suggests.
What costs do first-time buyers forget?
Principal and interest are only the headline. On a $400,000 home, budget for:
- Property taxes: around 1.1% of value per year nationally — that’s $4,400/year, or $367/month. (Rates vary a lot by state.)
- Homeowners insurance: roughly $150/month for a typical policy.
- Maintenance: the 1% rule says budget 1% of the home’s value per year — $4,000/year, or $333/month, averaged out. Roofs and furnaces don’t care about your budget.
- HOA dues: $0 to several hundred monthly if the property has them — always verify before offering.
Taxes, insurance, and maintenance alone add about $850/month here — on top of the $2,023 mortgage payment. Lenders include taxes and insurance in the 28% ratio (that’s the “TI” in PITI), but maintenance is on you to remember. This is also why renting can win short-term: none of these surprise a renter.
Don’t forget closing costs either: budget 2–5% of the purchase price — $8,000 to $20,000 on a $400,000 home — for lender fees, title insurance, appraisals, and prepaid taxes and insurance. That’s cash due at signing, on top of your down payment. First-time buyer programs in many states offer grants or credits that soften this, so check your state’s housing finance agency before assuming it’s all out of pocket.
For the bigger picture on budgeting for a home alongside everything else, see our personal finance basics guide — and browse all our financial calculators when you’re ready to run scenarios.
Should I get pre-approved before house hunting?
Yes — and understand the difference. Pre-qualification is a rough estimate from numbers you self-report; it carries no weight with sellers. Pre-approval means a lender verified your income, debts, assets, and credit, and committed to lending you a specific amount (usually good for 60–90 days).
Pre-approval does two jobs: it confirms the 28/36 math against a real lender’s criteria, and it makes your offer competitive — sellers routinely prefer pre-approved buyers over pre-qualified ones. Just remember the approval is a ceiling, not a target. Being approved for $400,000 doesn’t mean a $400,000 house fits your life; run the budget first, then let the pre-approval confirm it.
FAQs
How much house can I afford on $100,000 salary?
Using the 28% front-end rule: $100,000 ÷ 12 = $8,333/month, and 28% of that is $2,333/month for PITI. But the 36% back-end cap still applies — if you carry $1,000/month in other debts, your ceiling drops to $2,000 ($8,333 × 0.36 − $1,000). Always run both ratios and take the lower.
Does the 28/36 rule include property taxes and insurance?
Yes. The 28% front-end ratio covers the full PITI payment — principal, interest, property taxes, and homeowners insurance — plus HOA dues where applicable. That’s why online “affordability” estimates that only show principal and interest can mislead you by hundreds of dollars a month.
Can I buy a house with 3.5% down?
Yes, through an FHA loan (and 3–5% conventional options exist for qualified buyers). The trade-off is PMI of roughly $150–$200/month on a typical loan, plus a larger loan balance accruing interest. On a $400,000 home at 6.5%, 3.5% down costs about $592/month more than 20% down. It gets you in sooner — just price the premium honestly.
How much income do I need to buy a $400,000 house?
Work backward from the payment. With 20% down at 6.5%, principal and interest are $2,023; add ~$850 for taxes, insurance, and maintenance for about $2,873/month all-in. At the 28% ratio you need $2,873 ÷ 0.28 = $10,261/month, or roughly $123,000/year in gross income — assuming no other debts dragging on the 36% cap.
Is renting always throwing money away?
No — that’s marketing, not math. Rent buys flexibility and caps your housing cost; buying builds equity but adds taxes, maintenance, and 8–10% transaction costs when you sell. If you’ll stay under five years, renting usually wins. Run both scenarios before deciding.