Real Estate

How Much Home Can I Afford?

Mortgage approval isn't the same as affordability. A lender might pre-approve you for $500K at 50% DTI, but living there means every car repair, dental bill, and unexpected expense becomes an emergency. The classic 28/36 rule — housing payment under 28% of gross income, total debt under 36% — is what financial planners actually recommend. This calculator runs the real math: takes your income, monthly debt obligations, down payment, mortgage rate, property tax rate, and insurance/HOA, and returns the max home price you can responsibly afford under both 28% (conservative) and 36% (max DTI stretch) rules.

Max purchase price

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Max monthly payment: —
Conservative (28% rule): —
Stretch (36% backend): —

The 28/36 rule explained

Front-end ratio (28%): total housing payment (PITI = Principal + Interest + Taxes + Insurance) should not exceed 28% of gross monthly income. For someone earning $90K/year ($7,500/month gross), max housing payment = $2,100.

Back-end ratio (36%): housing payment + all other monthly debt (car loans, student loans, credit card minimums) should not exceed 36% of gross monthly income. Same person with $500/month in car loan: max housing payment = $7,500 × 0.36 - $500 = $2,200. The 28% rule wins (tighter constraint).

Lenders may approve up to 43% DTI (50%+ with compensating factors), but living at that level leaves no margin for the real world.

PITI components

P (Principal): the portion of the payment that reduces the loan balance.
I (Interest): cost of borrowing at the mortgage rate. Early in the loan, most of the payment is interest.
T (Taxes): property tax. Varies 0.5% (HI, AL) to 2.5% (NJ, IL) of home value annually.
I (Insurance): homeowners insurance ($1,200-3,500/year typical), plus PMI if down payment is under 20% of purchase price ($50-150/month per $100K of loan).

Lenders escrow taxes and insurance, so they're paid as part of the monthly payment. Don't forget about HOA dues (additional $50-500/month in many properties).

How to use this calculator

Gross annual income: before taxes and deductions.
Monthly debt payments: car loans, student loans, credit card minimums, etc.
Down payment available: cash you have ready for the purchase.
Mortgage rate: current 30-year fixed; check Bankrate or NerdWallet.
Property tax rate: depends on state and county. Check the listing or county records.
Insurance + HOA: monthly cost estimate.
Output: max purchase price, max monthly payment, 28% (conservative) and 36% (stretch) options.

Common scenarios

$90K income, $500/month debt, $50K down, 6.5% mortgage, 1.2% tax, $200/mo insurance. Max housing payment (28%): $2,100. Subtract taxes + insurance: leaves ~$1,650 for P&I. Loan amount: ~$260K. Total max price: $310K. Stretch (36%): max payment $2,200 → max price $325K.

$140K income, $0 debt, $80K down, 6.5%, 1.0% tax, $250/mo insurance. Max housing payment (28%): $3,267. P&I budget: ~$2,650. Loan: ~$420K. Max price: $500K. The no-debt scenario unlocks significant affordability.

$65K income, $700/month debt, $20K down, 6.5%, 1.5% tax, $180/mo insurance. Max payment (28%): $1,517. Tight P&I budget. Max price (28%): ~$200K. Stretch (36%): max payment ~$1,250 (after debt cap) → max price ~$220K. Modest income + debt + smaller down keep affordable range narrow.

FAQ

Is 28/36 too strict for today's market? +

It feels strict because housing has been getting less affordable for 20 years. But the safety margin it provides matters: at 28% housing + 36% total DTI, you can absorb car repairs, medical bills, and modest income disruption. At 50% DTI (the lender max), one bad event becomes financial crisis. 28/36 is conservative but tested.

Should I max out my approval? +

No. Lenders approve based on whether you'll likely make the payments; they don't optimize your quality of life. Targeting the same payment but a smaller / cheaper house leaves margin for retirement savings, vacations, emergencies, and the ability to invest in maintenance or upgrades.

What about FHA vs conventional? +

FHA loans: 3.5% down minimum, MIP for life of loan (higher monthly), DTI up to 50% in some cases. Conventional: 5-20% down (PMI removable at 20% equity), better rates above 20% down, DTI typically capped at 45%. For most buyers with 10%+ down and good credit, conventional wins. FHA is for low down payment or borderline credit.

How much down payment should I aim for? +

20% to avoid PMI. Less than 20% adds $50-150/month per $100K of loan in PMI premiums. PMI drops off when you reach 20% equity (auto at 22% per federal law). Putting 5% down can still make sense if home prices are rising faster than your saving rate.

What if rates drop after I buy? +

Refinance. If rates drop 1%+ below your current rate and you'll stay 3+ years, refinancing typically pays off through saved interest. Closing costs ($3-6K typically) recover in lower monthly payments over 18-36 months.

Should I include rental income in affordability? +

Lenders count rental income at 75% of market rent (allowance for vacancy and maintenance). For house-hacking strategies (duplex, ADU rental), include the realistic monthly rent in income. Don't count rental income at 100% — some months you have vacancy.

What's the difference between pre-qualification and pre-approval? +

Pre-qualification: lender estimates max loan based on stated income/assets. No verification, no documentation. Pre-approval: lender verifies income, assets, credit; issues a letter you can use in offers. Sellers strongly prefer pre-approval. Get it before house hunting.

Should I worry about my credit score? +

Yes. 760+ credit score gets the best mortgage rates. Below 740 starts paying premium. Below 680 limits options to FHA. Below 620 is hard to finance at all. Check your credit, dispute errors, pay down credit utilization to under 30%, don't open new accounts before applying.