28 / 36
The affordability rule
"How much house can I afford?" is really two questions wearing one coat. The first is what a lender will let you borrow. The second — and the one that matters far more — is what you can pay every month for the next thirty years without sacrificing the rest of your life. The two answers are rarely the same number, and the gap between them is where most buyers get into trouble. This guide walks through how affordability is actually calculated, what lenders scrutinize, how to build a realistic budget, and the costs that quietly inflate a payment well beyond the figure on a listing.
Estimate Your Budget With the Affordability Calculator →The oldest and most durable affordability benchmark is the 28/36 rule. It sets two ceilings, both measured against your gross (pre-tax) monthly income:
Take a household earning $90,000 a year, or $7,500 a month. Twenty-eight percent of that is $2,100, which is the most they should spend on housing. Thirty-six percent is $2,700, the ceiling for total debt. If that household already pays $500 a month on a car and student loans, only $2,200 of the $2,700 back-end ceiling is left for housing — and the back-end limit, not the front-end one, becomes the binding constraint. This is exactly why two people with identical incomes can afford very different homes: existing debt quietly eats the budget before the mortgage ever enters the picture.
The 28/36 rule is conservative by design, and that is its strength. Many lenders will stretch the back-end ratio to 43% or even higher for borrowers with excellent credit and reserves. Just because they will doesn't mean you should — a payment approved at 43% leaves dangerously little room for the unexpected.
A mortgage approval rests on four pillars. Understanding each one tells you where you have leverage to afford more — or where you're being held back.
DTI is the engine behind the 28/36 rule and the metric lenders weight most heavily. It is simply your total monthly debt payments divided by your gross monthly income. Lower is better. A back-end DTI under 36% is comfortable; 36–43% is the typical approval zone; above 43% closes the door on most conventional loans. The practical takeaway is blunt: paying down a car loan or credit card before you apply can raise your approved home price more than a raise would. You can see exactly where you stand with the debt-to-income ratio calculator.
Your down payment does three things at once: it shrinks the loan, it lowers the monthly payment, and at 20% it removes PMI entirely. It also signals financial stability to the lender. You don't need 20% to buy — conventional loans go as low as 3% and FHA loans 3.5% — but a smaller down payment means a larger loan and, usually, mortgage insurance on top.
Your credit score doesn't change how much you're allowed to borrow so much as how expensive it is to borrow. The difference between a 760 score and a 680 score can be half a percentage point or more on your rate — and on a $300,000 loan, half a point is roughly $90 a month and over $30,000 across thirty years. A higher score effectively buys you more house at the same monthly payment.
PITI stands for Principal, Interest, Taxes, and Insurance. Lenders measure affordability against this complete figure, not the stripped-down principal-and-interest number quoted in advertisements. Taxes and insurance can add $300–$700 a month, so a loan that looks affordable on paper can fail the 28% test once PITI is fully assembled. Always think in PITI.
Here is a step-by-step method to translate your income into a home price you can actually live with:
The mortgage calculator automates the conversion from monthly payment to loan amount, and the home affordability calculator runs the whole sequence above for you.
Numbers make the rules concrete. Both examples below assume a 7% rate, a 30-year term, and a 20% down payment, with PITI held to the 28% front-end limit.
Gross monthly income is $6,250. The 28% ceiling is $1,750 for total PITI. After reserving roughly $400 for taxes and insurance, about $1,350 remains for principal and interest, which supports a loan near $203,000. With 20% down, that points to a home price around $254,000. Carrying a $400 car payment would tighten the back-end ratio and pull the comfortable price down toward $215,000–$230,000.
Gross monthly income is $10,833. The 28% ceiling is about $3,033. Reserving roughly $650 for taxes and insurance leaves about $2,383 for principal and interest, supporting a loan near $358,000. With 20% down, that's a home price around $448,000. This buyer has more cushion, but the same warning applies: a couple of large debts or a higher-tax county can erase a chunk of that headroom quickly.
| Income | 28% PITI Ceiling | Est. Comfortable Price (20% down, 7%) |
|---|---|---|
| $60,000 | $1,400 | ~$200K |
| $75,000 | $1,750 | ~$254K |
| $100,000 | $2,333 | ~$345K |
| $130,000 | $3,033 | ~$448K |
| $160,000 | $3,733 | ~$555K |
Note: These are illustrative. They assume minimal other debt and average property taxes. Higher debt, lower down payments, or higher local taxes will lower the price you can comfortably carry.
The sticker price of a home is only the down payment for a much larger ongoing commitment. These recurring costs are what separate the advertised payment from the real one:
Stack these together and a $1,800 principal-and-interest payment can easily become $2,600 or more in true monthly cost. Budgeting only for principal and interest is the most common — and most expensive — affordability mistake.
Guidelines get you in the right neighborhood; your actual finances get you to the exact figure. Plug your income, debts, and down payment into the tools below to turn the principles in this guide into a personalized number you can trust.
Open the Home Affordability Calculator →It's a lending guideline with two ceilings, both measured against gross monthly income. Your total housing payment (PITI) should stay at or below 28% — the front-end ratio. All your monthly debt payments combined should stay at or below 36% — the back-end ratio.
Many lenders approve borrowers with strong credit up to a 43% back-end ratio, but the 28/36 ceilings give you the most comfortable, sustainable payment.
With 20% down ($80,000), you'd borrow $320,000. At 7% over 30 years that's about $2,129 in principal and interest, or roughly $2,700 once taxes and insurance are added. To keep that within the 28% front-end ratio, you'd need a gross income near $115,000 a year, assuming little other debt.
A smaller down payment or existing loans push the required income higher. Run your exact figures in the affordability calculator.
Your DTI ratio is the strongest single signal of whether you can absorb a new mortgage without falling behind. Every $100 of existing monthly debt removes roughly $15,000–$20,000 of home price from your approval, because that money can no longer support a mortgage payment.
That's why paying down a car loan or credit card before applying can raise your buying power more than a modest raise would.
No. Conventional loans allow as little as 3% down and FHA loans 3.5%. The trade-off is private mortgage insurance (PMI), which applies to any down payment below 20% and typically adds 0.3%–1.5% of the loan balance per year.
Twenty percent isn't required, but it lowers your payment, removes PMI, and gives you instant equity. PMI can also be cancelled later once you reach 20% equity.
PITI stands for principal, interest, taxes, and insurance — the four parts of a typical mortgage payment. Lenders measure affordability against the full PITI figure, so taxes and insurance can add several hundred dollars a month beyond the loan payment quoted in an ad.
Always budget around PITI, not bare principal and interest, or you'll underestimate your true monthly cost.
Keep an emergency fund of at least three to six months of total expenses after closing, and resist the urge to pour every dollar into the down payment. Homeownership brings unpredictable repairs, appliance failures, and rising insurance premiums.
A cash cushion is what turns a surprise expense into an inconvenience instead of a missed payment.