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How Much House Can I Afford? Complete Calculator Guide for 2026

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📚 Part of the First-Time Home Buyer Series:

How Much House Can I Afford? Complete Calculator Guide for 2026

Figuring out how much house you can afford is the single most important calculation you'll make as a home buyer. This is a critical step in your first-time home buying journey - get it wrong, and you could end up house-poor, struggling to make payments and unable to enjoy your new home. Get it right, and you'll find a home that fits comfortably within your budget while building equity for your future.

Most buyers start by looking at homes they want without considering what they can actually afford. Before you even start calculating affordability, you should determine whether buying makes more sense than renting in your current situation. This backwards approach leads to disappointment when pre-approval comes back lower than expected, or worse, buying a home that stretches finances too thin.

The 28/36 Rule: Your Starting Point

Mortgage lenders use the 28/36 rule as a baseline for determining how much house you can afford:

The 28% Rule: Your total monthly housing payment (including principal, interest, taxes, insurance, and HOA fees) should not exceed 28% of your gross monthly income.

The 36% Rule: Your total monthly debt payments (housing plus car loans, student loans, credit cards, etc.) should not exceed 36% of your gross monthly income.

Quick Example

If your gross monthly income is $8,000:

  • Maximum housing payment: $2,240 (28% of $8,000)
  • Maximum total debt: $2,880 (36% of $8,000)

If you have $400 in monthly car payments and $200 in student loan payments, your housing payment should stay under $2,280 to keep total debt at or below 36%.

The Real Affordability Formula

While the 28/36 rule gives you a starting point, true affordability requires a more comprehensive calculation. Here's what actually determines how much house you can afford:

1. Your Gross Monthly Income

Start with your total household income before taxes. Include:

  • Base salary or wages
  • Bonuses (usually averaged over 2 years)
  • Commission income (averaged over 2 years)
  • Self-employment income (averaged over 2 years)
  • Rental income (75% of gross rents)
  • Investment income
  • Alimony or child support (if it continues for at least 3 years)

Lenders want consistent, provable income. If you recently got a raise or started a new job, that's great for your finances but may not count fully for mortgage qualification yet.

2. Your Down Payment

Your down payment directly affects how much house you can buy. A larger down payment means:

  • You can buy a more expensive house with the same monthly payment
  • You avoid private mortgage insurance (PMI) if you put down 20% or more
  • You get better interest rates
  • You have more equity from day one

Common down payment amounts:

  • 3-5%: FHA loans and conventional loans with PMI
  • 10-15%: Reduces PMI costs significantly
  • 20%+: Eliminates PMI entirely

3. Your Debt-to-Income Ratio (DTI)

Your DTI is the percentage of your gross monthly income that goes toward debt payments. Lenders look at two ratios:

Front-End DTI: Housing costs only Back-End DTI: All debt including housing

Most conventional loans require:

  • Front-end DTI under 28%
  • Back-end DTI under 43% (though 36% is preferred)

FHA loans are slightly more flexible:

  • Front-end DTI up to 31%
  • Back-end DTI up to 43%

4. Your Credit Score

Your credit score affects both whether you'll be approved and what interest rate you'll pay. Understanding how your credit score impacts your mortgage can help you save six figures over your loan term. Here's how it impacts affordability:

Excellent (740+): Best rates, potentially saving hundreds per month Good (700-739): Competitive rates Fair (650-699): Higher rates, smaller loan amounts Poor (below 650): FHA may be your only option, with higher rates

A 1% difference in interest rate on a $400,000 loan costs about $240 per month, or nearly $87,000 over 30 years. A 40-point improvement in your credit score can lower your rate by 0.25-0.5%, adding $15,000-$30,000 to your buying power.

5. Current Interest Rates

Interest rates have a massive impact on affordability. When rates rise by just 1%, your buying power can drop by roughly 10%.

Example at $2,000/month payment:

  • At 6% interest: You can afford a $333,000 loan
  • At 7% interest: You can afford a $301,000 loan

Always get pre-approved before house hunting so you know exactly what current rates mean for your budget.

Beyond the Monthly Payment: Hidden Costs

Most affordability calculators only show the mortgage payment, but your true monthly housing cost includes much more:

Property Taxes

Property taxes vary wildly by location. In Texas, expect to pay 1.5-2% of home value annually. In Hawaii, it might be 0.3%. A $400,000 home costs:

  • Texas: $667-$833/month in property taxes
  • Hawaii: $100/month in property taxes

Research local tax rates before falling in love with a home in a high-tax area.

Homeowners Insurance

Budget $1,000-$3,000 per year for homeowners insurance, or about $83-$250 per month. Coastal areas, areas prone to natural disasters, and homes with older roofs or systems cost more to insure.

HOA Fees

If you're buying a condo or in a planned community, HOA fees can range from $100-$700+ per month. These are mandatory and non-negotiable, so factor them into your affordability calculation from the start.

PMI (Private Mortgage Insurance)

If you put down less than 20%, expect to pay PMI of 0.5-1% of the loan amount annually. On a $400,000 loan, that's $167-$333 per month until you reach 20% equity.

Learn more about how PMI works and strategies to avoid it in our complete guide. Understanding PMI costs is essential for calculating your true monthly payment.

Maintenance and Repairs

Budget 1-2% of home value annually for maintenance and repairs, or about $333-$667 per month on a $400,000 home. This covers:

  • HVAC servicing and eventual replacement
  • Roof repairs or replacement
  • Plumbing issues
  • Appliance repairs and replacement
  • Landscaping and exterior maintenance

Utilities

Larger homes cost more to heat, cool, and maintain. Budget $200-$500+ per month depending on home size, age, and location.

How Much House Can You Actually Afford?

Now let's put it all together with a realistic example:

Your Situation:

  • Gross monthly income: $8,000
  • Down payment: $50,000 (10%)
  • Current debts: $600/month
  • Credit score: 720
  • Current interest rate: 7%

Step 1: Calculate Maximum Monthly Payment

  • 28% of $8,000 = $2,240 maximum housing payment
  • 36% of $8,000 = $2,880 maximum total debt
  • $2,880 - $600 existing debt = $2,280 available for housing

Your maximum is $2,240 (the lower number).

Step 2: Subtract Non-Mortgage Housing Costs Let's estimate:

  • Property taxes: $400/month
  • Homeowners insurance: $150/month
  • HOA: $0
  • PMI: $150/month (0.5% on $450,000 loan)

Total: $700/month

$2,240 - $700 = $1,540 available for principal and interest

Step 3: Calculate Maximum Loan Amount At 7% interest over 30 years, $1,540/month supports approximately a $231,000 loan.

Add your $50,000 down payment = $281,000 home purchase price

But wait - your lender might pre-approve you for more based on the 36% rule ($2,280/month), which would push your buying power to around $315,000. Should you max out your approval?

Should You Max Out Your Pre-Approval?

Just because a lender approves you for a certain amount doesn't mean you should spend it all. Lenders don't know about:

  • Your plans to start a family
  • Your student loans in forbearance
  • Your irregular income as a freelancer
  • Your expensive hobbies
  • Your aggressive retirement savings goals
  • Your desire to travel

Consider spending 20-25% below your maximum pre-approval to leave breathing room for:

  • Emergency fund building
  • Retirement contributions
  • Kids' activities and education
  • Vehicle replacement
  • Unexpected medical costs
  • Career changes or sabbaticals

Special Situations That Affect Affordability

Self-Employed or Variable Income

Lenders average your income over 2 years, which can significantly lower your qualifying income if you've had a down year. If you're self-employed:

  • You'll need 2 years of tax returns
  • Your income is calculated after business deductions
  • Expect more scrutiny and documentation

First-Time Home Buyer Programs

Many states and localities offer down payment assistance and lower interest rates for first-time buyers. These programs can increase affordability by:

  • Reducing down payment requirements to 0-3%
  • Offering below-market interest rates
  • Providing down payment grants or forgivable loans

High-Cost Areas

In expensive markets like San Francisco, New York, or Los Angeles, conventional affordability rules often don't apply. Lenders may:

  • Accept higher DTI ratios (up to 50%)
  • Require larger down payments
  • Offer jumbo loans with stricter requirements

Using an Affordability Calculator

Online affordability calculators provide a quick estimate, but they have limitations. Most calculators:

  • Use standard 28/36 rules without considering your specific situation
  • Don't account for all monthly housing costs
  • Assume average property taxes and insurance
  • May not reflect current interest rates

For an accurate picture, you need to:

  1. Get a pre-approval from an actual lender
  2. Research real property tax rates in your target area
  3. Get insurance quotes on specific homes
  4. Factor in all monthly debts
  5. Leave cushion for your lifestyle

Getting Pre-Approved: The Reality Check

Pre-approval is the most accurate way to know what you can afford. During pre-approval:

  1. You submit complete financial documentation
  2. Lender verifies your income, assets, and debts
  3. They pull your credit and review your history
  4. You receive a letter stating your maximum loan amount

Pre-approval typically takes 1-3 days and is free. Come prepared with:

  • 2 years of tax returns
  • 2 months of bank statements
  • Recent pay stubs
  • Photo ID
  • List of all debts and monthly payments

Always get pre-approved before house hunting so you know exactly what current rates mean for your budget. If you're confused by terms like APR, DTI, LTV, or points, check our Real Estate & Mortgage Terms Glossary for clear definitions.

How to Increase Your Home Affordability

If your current affordability isn't where you want it, here's how to improve it:

Pay Down Debt

Every $100 in monthly debt payments you eliminate adds roughly $20,000 to your buying power. Focus on:

  • Car loans (consider selling and buying used with cash)
  • Credit cards (pay these off first)
  • Personal loans
  • Student loans (though don't drain savings to do this)

Increase Your Income

  • Negotiate a raise
  • Take on side work (needs 2 year history for lenders to count it)
  • Add a second household income
  • Document any income you're currently not claiming

Improve Your Credit Score

A 40-point credit score improvement can lower your rate by 0.25-0.5%, adding $15,000-$30,000 to your buying power. Focus on:

  • Paying all bills on time for 6-12 months
  • Reducing credit card balances below 30% of limits
  • Not opening new credit accounts
  • Disputing any errors on your credit report

Save a Larger Down Payment

Every additional $10,000 in down payment:

  • Reduces your monthly payment by $60-70
  • Potentially eliminates or reduces PMI
  • May qualify you for better rates
  • Gives you more negotiating power

Shop for Better Interest Rates

Get quotes from at least 3 lenders. A 0.25% better rate on a $400,000 loan saves you $60/month or $21,000 over 30 years.

Ready to Make Your Offer?

Once you know how much house you can afford, the next step is making a competitive offer that gets accepted. Creating an offer involves balancing price, contingencies, closing timeline, and other terms that matter to sellers.

Use Offer.Guide to generate a complete, competitive offer in minutes. Our tool helps you structure an offer that fits your budget while maximizing your chances of winning in any market condition.

Generate Your Offer Now

Bottom Line

How much house you can afford isn't just a math problem - it's about balancing what lenders will give you with what lets you sleep at night. Use the 28/36 rule as a starting point, factor in all housing costs beyond the mortgage, and leave room for life to happen.

The right home isn't the one that you can qualify for. It's the one that lets you build equity while still living the life you want. Start with affordability, get pre-approved early, and make offers with confidence knowing exactly what you can spend.

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