How Much House Can You Afford? The Complete Guide for 2026

Published: May 27, 2025 Reading Time: 13 minutes Category: Buying Guides

The question every home buyer asks is: "How much house can I afford?" The answer isn't just about what a lender will approve you for—it's about what makes financial sense for your life. There's a huge difference between what you can technically borrow and what you should actually borrow. This guide shows you how to calculate both.

The 28/36 Rule: Understanding Lender Standards

Mortgage lenders use a simple formula called the 28/36 rule to determine how much you can borrow. Here's how it works:

28%: Your housing costs (mortgage payment, property tax, insurance, HOA fees) shouldn't exceed 28% of your gross monthly income
36%: Your total debt payments (housing + car loans + credit cards + student loans + other debts) shouldn't exceed 36% of your gross monthly income

Let's walk through an example. If you earn $75,000 per year, your gross monthly income is $6,250.

28% of $6,250 = $1,750. This is the maximum you can spend on housing costs per month.

36% of $6,250 = $2,250. This is the maximum you can spend on all debts per month.

If you have a $400 car payment and $100 in credit card minimum payments, you're using $500 of your $2,250 debt budget. That leaves $1,750 for housing—which happens to match your 28% housing limit. You'd be maxed out.

Pro Tip: Most lenders use the 28/36 rule, but some will go up to 43% debt-to-income ratio if you have excellent credit, strong savings, and stable income. But just because you can doesn't mean you should. The further you push these limits, the more financially stressed you'll be.

Converting Your Housing Budget to a Home Price

Okay, so you know you can afford $1,750/month for housing. What home price does that translate to?

This depends on three factors: the interest rate, the down payment, and the loan term (almost always 30 years for first-time buyers).

At a 6.5% interest rate with 20% down, a $1,750 housing payment gets you approximately:

Home Price	Down Payment	Loan Amount	Monthly Payment	Property Tax + Insurance	Total Housing Cost
$370,000	$74,000	$296,000	$1,330	$420	$1,750
$400,000	$80,000	$320,000	$1,435	$450	$1,885
$330,000	$66,000	$264,000	$1,186	$380	$1,566

Notice how small changes in home price add up. A $30,000 difference in home price creates a $135/month payment difference, which is $1,620 per year.

Reality Check: The 28% rule uses gross income, but you pay taxes. If you earn $75,000 gross, your actual take-home might be $55,000 after taxes. Don't stretch your budget assuming 28% of gross—make sure your housing payment is comfortable relative to your actual spendable income.

What's Included in Your Housing Costs?

When lenders calculate your 28% housing allowance, they include:

Mortgage principal and interest (P&I)
Property taxes
Homeowners insurance
HOA fees (if applicable)
PMI (if down payment under 20%)

What's NOT included (but you still have to pay):

Utilities (water, electric, gas, internet)
Maintenance and repairs
Landscaping or yard work
Home improvements
Appliance replacements

Here's the kicker: many first-time buyers forget that homeownership costs way more than just the mortgage payment. On average, plan to spend 1-2% of your home's value annually on maintenance and repairs. On a $350,000 home, that's $3,500-7,000 per year, or $290-580 per month.

Critical Mistake: Don't spend every penny of your 28% housing allowance. If you're maxed out at $1,750, you have zero room for an unexpected roof repair, new HVAC system, or insurance premium increase. Aim to spend 20-25% of gross income on housing, leaving a buffer.

Down Payment Impact on Affordability

Your down payment percentage dramatically affects what you can afford, both in terms of monthly payments and how much you need to save upfront.

Using the same $75,000 annual income example ($1,750 housing budget):

5% down: You can afford ~$305,000 home. You need $15,250 down. BUT you'll pay PMI (~$180/month). Total payment: ~$1,750 (mortgage + PMI + tax/insurance).
10% down: You can afford ~$330,000 home. You need $33,000 down. PMI is ~$140/month. Total payment: ~$1,750.
20% down: You can afford ~$370,000 home. You need $74,000 down. No PMI. Total payment: ~$1,750.

Interestingly, your monthly payment stays around $1,750 in all three scenarios—that's your budget limit. But with a larger down payment, you can afford a more expensive home (because you're borrowing less and have better terms).

However, there's a tradeoff: putting down 20% means waiting longer to save $74,000. Putting down 5% means buying sooner but with PMI and higher risk of being underwater if prices drop.

Smart Strategy: The best down payment is often 10-15%, not 20%. This balances buying sooner with keeping adequate emergency savings. You'll pay PMI, but typically only for 5-10 years (as your loan balance shrinks and home appreciates). That's often a better trade than waiting 3-4 years to save 20%.

The Hidden Costs of Homeownership

This is where many buyers get surprised. Your mortgage payment is just the beginning. Here's what the typical homeowner spends annually:

Maintenance: $3,500-7,000 (1-2% of home value)
Utilities: $2,400-3,600 (varies by region)
Property taxes: Varies widely, but often $3,000-8,000+ annually
Insurance: $1,200-2,400 annually
HOA fees: $100-500+ monthly (if applicable)
Lawn care: $0 if you do it, $3,000-6,000+ if you hire (optional)

On a $350,000 home, realistic total annual housing costs (beyond the mortgage) might be $12,000-20,000. That's $1,000-1,670 per month in addition to your mortgage payment.

Using Our Affordability Tools

Want to calculate this yourself? Use our DTI calculator to see how much of your income is going to all debts. Then use our mortgage calculator to see what different home prices, down payments, and interest rates cost monthly.

The combination tells you exactly what you can afford and whether it fits your financial picture.

Red Flags: Signs You're Over-Stretching

Your housing payment is 30%+ of gross income
You have less than 3 months of expenses in emergency savings
You're using every penny of your down payment savings (no cushion for closing costs)
You'd have to miss a payment if you lost your job for one month
You're taking out a home equity line of credit immediately after buying
You're considering an adjustable-rate mortgage hoping to refinance later

FAQ: Home Affordability Questions

Q: Can I afford more than the lender approves me for?
A: Absolutely. Lenders use the 28/36 rule as a safety guideline, but they're not as conservative as you should be. Just because you're approved for $450,000 doesn't mean you should buy at that price. If you're only comfortable spending $350,000, that's a perfectly valid financial decision.

Q: Should I count my bonus as income?
A: Lenders typically want 2 years of bonus history before counting it. If you're new to a job, they might not count it at all. For affordability purposes, calculate two scenarios: one with bonus income, one without. Make sure you can afford the home without the bonus.

Q: Is it better to be approved for less than my budget allows?
A: Yes. If a lender approves you for $400,000 and you're comfortable with $350,000, be the person who buys at $350,000. You'll have more financial flexibility, lower risk of default, and better long-term wealth building.

The Bottom Line

You can afford a home when your monthly housing payment is 25-28% of your gross income and your total debt is under 36%. But "can afford" and "should buy" aren't the same thing. A truly sustainable home purchase leaves you with emergency savings, room for unexpected expenses, and the ability to handle a financial setback without panic.

Use our calculators, run the numbers, and be honest with yourself about your financial comfort level. The right home at the right price for your situation beats overstretching for a house that looks impressive on paper.