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How Much House Can I Afford? Complete 2026 Guide

•OfferGuide Team

📚 Part of the First-Time Home Buyer Series:

How Much House Can I Afford? Complete 2026 Guide

The first question every home buyer asks is: "How much house can I afford?" Getting this answer right is crucial for your first-time home buying journey - buy too much house and you'll be house-poor, struggling with monthly payments. Buy too little and you might miss out on your dream home when you could have qualified for more.

Use our Home Affordability Calculator to get your personalized answer in 60 seconds, or read on to understand exactly how lenders calculate affordability and what you can do to maximize your buying power.

The Quick Answer: The 28/36 Rule

Lenders use a simple formula called the 28/36 rule to determine how much house you can afford:

  • 28% rule (Front-End Ratio): Your monthly housing costs shouldn't exceed 28% of your gross monthly income
  • 36% rule (Back-End Ratio): Your total monthly debt payments (including housing) shouldn't exceed 36% of your gross monthly income

This means if you earn $6,000 per month before taxes:

  • Maximum housing payment: $1,680 (28% of $6,000)
  • Maximum total debt: $2,160 (36% of $6,000)

If you already pay $500/month in car loans and student loans, your housing payment is capped at $1,660 ($2,160 - $500).

For a deeper dive into these calculations with real examples and interactive tools, see our complete calculator guide.

What's Included in Your Housing Payment?

When lenders calculate your housing costs, they include:

PITI + HOA:

  • Principal (loan payment)
  • Interest (loan payment)
  • Taxes (property taxes)
  • Insurance (homeowners insurance)
  • HOA fees (if applicable)

Many first-time buyers make the mistake of only looking at principal and interest. A $350,000 home with a $280,000 loan at 7% interest has a principal and interest payment of about $1,863/month - but add property taxes ($350/month), insurance ($100/month), and HOA fees ($150/month), and your total payment jumps to $2,463/month.

If you're confused by terms like PITI, DTI, LTV, or points, check our Real Estate & Mortgage Terms Glossary for clear definitions.

Real Examples: How Much Can You Afford?

Let's walk through real scenarios to see how the 28/36 rule works in practice.

Example 1: Single First-Time Buyer

Profile:

  • Annual income: $75,000 ($6,250/month gross)
  • Monthly debts: $400 (car loan + student loans)
  • Down payment saved: $30,000
  • Current interest rate: 7%

Calculation:

  • Max housing payment (28% rule): $1,750
  • Max total debt (36% rule): $2,250
  • Available for housing after debts: $1,850

The 28% rule is more restrictive here, so max housing payment = $1,750/month

After subtracting estimated taxes ($300), insurance ($100), the buyer has $1,350 for principal and interest, which supports a loan of about $202,000. With the $30,000 down payment, this buyer can afford a $232,000 home.

Example 2: Married Couple, Dual Income

Profile:

  • Combined annual income: $140,000 ($11,667/month gross)
  • Monthly debts: $800 (two car payments + credit cards)
  • Down payment saved: $70,000
  • Current interest rate: 7%

Calculation:

  • Max housing payment (28% rule): $3,267
  • Max total debt (36% rule): $4,200
  • Available for housing after debts: $3,400

The 28% rule caps them at $3,267/month for housing.

After subtracting taxes ($550) and insurance ($150), they have $2,567 for principal and interest, supporting a loan of about $384,000. With their $70,000 down payment, this couple can afford a $454,000 home.

Example 3: High Earner with High Debt

Profile:

  • Annual income: $120,000 ($10,000/month gross)
  • Monthly debts: $2,500 (student loans + car + credit cards)
  • Down payment saved: $50,000
  • Current interest rate: 7%

Calculation:

  • Max housing payment (28% rule): $2,800
  • Max total debt (36% rule): $3,600
  • Available for housing after debts: $1,100

Here's where high debt kills affordability. Despite earning $120,000/year, the 36% back-end ratio limits housing to just $1,100/month because of the $2,500 in existing debts.

After taxes ($300) and insurance ($100), only $700 remains for principal and interest, supporting a loan of just $105,000. With the $50,000 down payment, this buyer can only afford a $155,000 home - far below what their income would suggest.

Key takeaway: Pay down high-interest debt before house hunting. Every $100/month in debt you eliminate frees up $100/month for housing.

Factors That Impact Your Affordability

1. Your Income (Biggest Factor)

Lenders use your gross income (before taxes) to calculate affordability. This includes:

  • Base salary or wages
  • Bonuses (if consistent for 2+ years)
  • Commissions (averaged over 2 years)
  • Self-employment income (averaged over 2 years)
  • Alimony/child support (if it continues for 3+ years)
  • Rental income (75% of it counts)

Income you can't use:

  • Tax refunds
  • One-time bonuses
  • Money from family (unless it's a gift for down payment)
  • Future raises or promotions

2. Your Existing Debts

All recurring monthly obligations count against you:

  • Car loans and leases
  • Student loans
  • Credit card minimum payments
  • Personal loans
  • Alimony or child support payments

Debts that DON'T count:

  • Utilities
  • Groceries
  • Car insurance
  • Health insurance
  • Cell phone bills

3. Your Down Payment

A larger down payment increases affordability in two ways:

Direct impact: Every dollar you put down is one less dollar you need to borrow. A $50,000 down payment vs. a $30,000 down payment means you can buy a home that's $20,000 more expensive with the same monthly payment.

PMI impact: Put down less than 20% and you'll pay Private Mortgage Insurance (PMI), typically 0.5-1% of the loan amount annually. On a $300,000 loan, that's $1,500/year or $125/month - money that doesn't build equity. A 20% down payment eliminates PMI entirely.

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.

4. Interest Rates

Interest rates dramatically affect affordability. Consider a $300,000 loan:

  • At 6% interest: $1,799/month (P&I)
  • At 7% interest: $1,996/month (P&I)
  • At 8% interest: $2,201/month (P&I)

That 2% difference costs you $402/month, or $144,720 over 30 years. When rates are high, you can afford less house - or you need to save a larger down payment to compensate.

Your credit score has a massive impact on the interest rate you'll get - potentially costing or saving you over $100,000 over the life of your loan. A 40-point improvement in your credit score can lower your rate by 0.25-0.5%.

5. Property Taxes and Insurance

Property taxes vary wildly by location:

  • Texas: 1.6-2.5% of home value annually
  • California: 0.7-1.0% of home value annually
  • Hawaii: 0.3-0.4% of home value annually

On a $400,000 home:

  • In Texas (2%): $8,000/year = $667/month
  • In California (1%): $4,000/year = $333/month
  • In Hawaii (0.35%): $1,400/year = $117/month

That's a $550/month difference that directly impacts how much house you can afford. High-tax states mean lower purchase prices for the same monthly payment.

Beyond the 28/36 Rule: Other Considerations

While lenders use the 28/36 rule, you should consider your complete financial picture. Before you even start calculating affordability, you should determine whether buying makes more sense than renting in your current situation.

Emergency Fund

Before buying, you should have:

  • 3-6 months of expenses in savings
  • Separate from your down payment
  • Accessible for home repairs, job loss, medical emergencies

Don't drain your entire savings for a larger down payment. A $10,000 emergency fund is more valuable than putting that $10,000 toward the house and having nothing left.

Future Expenses

Will your expenses increase after buying?

  • Longer commute = higher gas costs
  • Bigger home = higher utility bills
  • Homeowner responsibilities (lawn care, repairs, maintenance)
  • HOA fees or special assessments
  • Furnishing a larger space

Career Stability

The 28/36 rule assumes stable income. If you're:

  • In a commission-based role with variable income
  • Starting a new business
  • In a probationary period at a new job
  • Facing potential layoffs in your industry

Consider being more conservative - aim for 25% of income instead of 28%.

Life Changes

Planning any major life changes in the next 3-5 years?

  • Having children (loss of one income, daycare costs)
  • Going back to school (loss of income, tuition)
  • Career change (potential pay cut)
  • Aging parents (potential financial support)

If yes, build in a buffer. Don't max out your affordability today if your situation will change tomorrow.

How to Increase Your Home Affordability

If you calculated your affordability and were disappointed, here are proven strategies to increase your buying power:

1. Pay Down High-Interest Debt (Biggest Impact)

Example: You earn $80,000/year with $600/month in credit card and car payments.

  • Current max housing payment: ~$1,267/month
  • Pay off that $600/month debt
  • New max housing payment: ~$1,867/month
  • Result: Can afford $90,000 more in home price

Paying off debt gives you a 36% "raise" for home buying purposes. A $10,000 debt payoff that frees up $300/month allows you to borrow about $45,000 more.

Priority order for debt payoff:

  1. Credit cards (highest interest)
  2. Personal loans
  3. Car loans
  4. Student loans (often lowest interest, may have tax benefits)

2. Increase Your Income

Even a modest raise significantly impacts affordability:

  • $5,000 raise = ~$8,000 more in home price
  • $10,000 raise = ~$16,000 more in home price
  • $20,000 raise = ~$32,000 more in home price

Strategies:

  • Negotiate a raise at your current job
  • Take on a side gig (must show 2-year history)
  • Add a co-borrower (spouse, partner, family member)
  • Include bonus/commission income (if consistent)

3. Save a Larger Down Payment

Every extra $10,000 saved = $10,000 more expensive home you can afford, with no increase in monthly payment.

Aggressive saving strategies:

  • Automate transfers to savings on payday
  • Put tax refunds directly toward down payment
  • Use windfalls (bonuses, gifts, inheritance)
  • Cut one major expense temporarily (eating out, subscriptions)
  • Consider down payment assistance programs (first-time buyers)

4. Improve Your Credit Score

Better credit = lower interest rates = higher affordability.

Credit score impacts:

  • 760+ score: Best rates (currently ~6.8%)
  • 700-759 score: Good rates (~7.0%)
  • 660-699 score: Average rates (~7.5%)
  • 620-659 score: Higher rates (~8.0%)

On a $300,000 loan, improving from a 680 to 760 credit score (7.5% to 6.8%) saves $125/month - equivalent to affording $18,000 more house.

Quick credit improvements:

  • Pay down credit card balances below 30% utilization
  • Correct any errors on credit report
  • Become an authorized user on someone's good account
  • Don't open new credit before applying for mortgage
  • Pay all bills on time for 6+ months before applying

5. Consider Different Loan Programs

Different loan types have different requirements:

Conventional Loan:

  • Minimum 3% down
  • Best for good credit (680+)
  • PMI required if less than 20% down
  • Can use for any home price

FHA Loan:

  • Minimum 3.5% down
  • Accepts lower credit scores (580+)
  • Requires mortgage insurance (can't be removed)
  • Loan limits apply ($472,030 in most areas)

VA Loan (Veterans):

  • 0% down payment
  • No PMI required
  • Best rates available
  • Must meet service requirements

USDA Loan (Rural Areas):

  • 0% down payment
  • Must be in eligible rural area
  • Income limits apply
  • No PMI but has annual fee

6. Shop in Lower-Tax Areas

If you're flexible on location, property taxes can make a huge difference:

Example: $350,000 home, $280,000 loan at 7%

  • High-tax area (2.5%): $2,596/month total payment
  • Low-tax area (0.8%): $2,101/month total payment
  • Difference: $495/month = Can afford $74,000 more house in low-tax area

Research property taxes in neighboring towns or counties. Sometimes moving 10 miles can save $3,000+/year in taxes.

Common Home Affordability Mistakes

Mistake 1: Only Looking at Monthly Payment

"I can afford $2,000/month so I'll just find a house with that payment."

Problem: You're not factoring in:

  • Property taxes (vary by location)
  • Homeowners insurance (varies by home)
  • HOA fees (if applicable)
  • PMI (if less than 20% down)
  • Maintenance and repairs ($1,000-2,000/year)

A $2,000 mortgage payment can easily become $2,600/month after all costs.

Mistake 2: Stretching to the Maximum

Just because a lender approves you for a $450,000 home doesn't mean you should buy it.

Lenders don't know about:

  • Your other financial goals (retirement, college savings)
  • Your spending habits
  • Your emergency fund status
  • Your job security
  • Your risk tolerance

Many financial advisors recommend staying at 25% of gross income (not 28%) to have breathing room.

Mistake 3: Forgetting About Closing Costs

You need cash for:

  • Down payment (3-20% of home price)
  • Closing costs (2-5% of home price)
  • Moving expenses
  • Immediate repairs or improvements
  • Emergency fund

On a $350,000 home with 10% down:

  • Down payment: $35,000
  • Closing costs: ~$10,500
  • Total cash needed: $45,500

Don't drain your savings completely for a larger down payment.

Mistake 4: Ignoring Future Financial Goals

Buying the most house you can afford today might prevent:

  • Saving for retirement (need 15% of income)
  • Building college funds for kids
  • Starting a business
  • Taking vacations
  • Having financial flexibility

Housing shouldn't consume so much of your budget that other goals become impossible.

Mistake 5: Not Accounting for Income Changes

If you're a dual-income household planning to have children, can you afford the house on one income? What if:

  • You or your spouse loses a job
  • You take a lower-paying job you enjoy more
  • You go back to school
  • You start a business

Build in a safety margin for life changes.

Calculate Your Exact Affordability

Ready to see exactly how much house you can afford based on your specific situation?

Use our free Home Affordability Calculator - just enter your income, debts, and down payment to get:

  • Your maximum home price (conservative, recommended, and aggressive ranges)
  • Estimated monthly payment breakdown
  • Debt-to-income ratios
  • How you compare to lender requirements

The calculator uses the same 28/36 rule that lenders use, giving you an accurate picture of what you'll be approved for.

Next Steps After Calculating Affordability

Once you know your budget:

  1. Get pre-approved (not just pre-qualified) from 2-3 lenders to confirm your affordability and compare rates

  2. Build your home search around your approved range - look at homes 5-10% below your max to leave room for negotiation

  3. Calculate other costs using our Mortgage Payment Calculator to see the full monthly breakdown

  4. Start saving if you need a bigger down payment - use our Down Payment Calculator to plan your timeline

  5. Understand closing costs - use our Closing Costs Calculator to budget for the total cash needed

  6. Develop your offer strategy - when you find the right home, use OfferGuide to create a data-driven offer that wins without overpaying

The Bottom Line

Determining home affordability isn't just about what a lender will approve - it's about what you can comfortably afford while maintaining your quality of life and other financial goals.

The 28/36 rule is a starting point, but your personal situation, risk tolerance, and future plans should guide your final decision. When in doubt, err on the conservative side. It's better to buy less house and have financial flexibility than to be house-poor and stressed about every mortgage payment.

Start here: Use our Home Affordability Calculator to get your personalized number, then begin your home search with confidence knowing exactly what you can afford.

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