How Much House Can I Afford? The Numbers Lenders Use
In this guide
- The 28/36 rule
- Worked example: a $90,000 salary
- The costs beyond the mortgage
- A safer personal limit
- How your credit score affects affordability
- How much do you need for a down payment?
- Don’t drain your savings to buy
- Steps to take before house hunting
- Renting vs. buying: a quick reality check
- Frequently asked questions
- Know your own number
A lender’s pre-approval tells you the most you can borrow. It doesn’t tell you what you can comfortably afford while still saving for retirement, traveling, handling repairs and sleeping well at night. Those two numbers are often very different.
This guide explains how lenders decide how much you can borrow, walks through a full example, covers the hidden costs of homeownership and helps you set a safer personal budget.
The 28/36 rule
Many lenders and financial planners use the 28/36 rule as a starting point:
- 28%: your monthly housing costs should be no more than 28% of your gross monthly income. Housing costs include principal, interest, property taxes, homeowners insurance (often called PITI), plus any HOA dues and mortgage insurance.
- 36%: your total monthly debt payments, including housing, car loans, student loans and credit card minimums, should be no more than 36% of gross monthly income.
These ratios are called debt-to-income ratios (DTI). Some loan programs allow higher ratios, sometimes up to the mid-40s or more, but being approved for more doesn’t make it wise to borrow more.
Worked example: a $90,000 salary
| Step | Calculation | Result |
|---|---|---|
| Gross monthly income | $90,000 ÷ 12 | $7,500 |
| Maximum housing payment (28%) | $7,500 × 0.28 | $2,100 |
| Maximum total debt (36%) | $7,500 × 0.36 | $2,700 |
| Existing debts (student loan + car) | $600 | |
| Housing allowed by the 36% test | $2,700 − $600 | $2,100 |
The maximum housing payment is $2,100 a month. Now estimate the home price:
| Item | Monthly amount |
|---|---|
| Property taxes and homeowners insurance (estimate) | $500 |
| Left for principal and interest | $1,600 |
| Loan amount at 6.5% for 30 years | About $253,000 |
| Home price with 10% down | About $281,000 |
Illustrative interest rate; actual mortgage rates change daily and depend on your credit, down payment and loan type. Taxes and insurance vary widely by location.
With 10% down, a mortgage insurance premium would also likely apply, which would slightly reduce the price range. If the buyer had no other debts, the 28% limit would still cap housing at $2,100.
The costs beyond the mortgage
Homeownership costs more than the monthly mortgage payment. Budget for:
| Cost | Typical range |
|---|---|
| Down payment | 3–20% of the price, depending on the loan |
| Closing costs | Often 2–5% of the loan amount |
| Private mortgage insurance (PMI) | Usually required on conventional loans with less than 20% down |
| Property taxes | Varies widely by state and county |
| Homeowners insurance | Varies by location and home; higher in disaster-prone areas |
| HOA fees | $0 to several hundred dollars a month |
| Maintenance and repairs | A common rule of thumb is 1–2% of the home’s value per year |
| Utilities | Often higher than in an apartment |
| Moving and furnishing | Varies |
On a $281,000 home, 1–2% for maintenance means setting aside roughly $2,800 to $5,600 a year, or about $235 to $470 a month.
A safer personal limit
The 28/36 rule assumes you have no other big goals. For a budget that leaves room to save, many planners suggest:
- Keep total housing costs to about 25% of take-home pay if you want to save aggressively, or up to 30–35% if you live in a high-cost area and can still save at least 15% for retirement.
- Include maintenance in your monthly budget.
- Run your budget with the new payment for a few months before buying: save the difference between your rent and the expected homeownership costs. If it feels tight, the house is too expensive.
Our guide to making a budget shows how to fit housing into the rest of your plan.
How your credit score affects affordability
Your credit score influences your mortgage rate, and the rate changes how much house you can afford. A borrower with a score in the mid-700s or higher typically qualifies for better rates than someone in the mid-600s. Even a small rate difference changes your payment by hundreds of dollars a month on a large loan. Our guide to what makes a good credit score explains how to improve yours before applying.
How much do you need for a down payment?
| Loan type | Minimum down payment | Notes |
|---|---|---|
| Conventional | Often 3–5% | PMI usually required under 20%; can be removed later |
| FHA | 3.5% with a credit score of at least 580 | Mortgage insurance premiums typically last longer |
| VA | Often 0% | For eligible service members and veterans |
| USDA | Often 0% | For eligible rural and suburban areas and income limits |
A 20% down payment avoids PMI on a conventional loan, but waiting years to reach 20% isn’t always necessary. What matters most is that your payment is comfortable and you still have an emergency fund after closing.
Don’t drain your savings to buy
After paying your down payment and closing costs, you should still have:
- A full emergency fund of three to six months of expenses. See how to build an emergency fund.
- A small home repair fund for the inevitable first-year surprises.
Many first-time buyers run into trouble not because of the mortgage, but because a water heater, roof or air conditioner fails in the first year with no cash available.
Steps to take before house hunting
- Check your credit reports and score, and fix any errors.
- Pay down high-interest debt to improve your DTI.
- Save for your down payment and closing costs in a high-yield savings account.
- Get pre-approved by more than one lender and compare loan estimates.
- Set your own maximum price based on your budget, not the pre-approval amount.
- Factor in the total cost of the specific home: taxes, insurance, HOA and condition.
Renting vs. buying: a quick reality check
The monthly mortgage payment isn’t the full cost of owning, and rent isn’t “throwing money away.” Here’s a simplified first-year comparison for the $281,000 example home:
| Annual cost | Renting a similar home | Owning (10% down) |
|---|---|---|
| Rent or principal and interest | $24,000 | $19,200 |
| Property taxes and insurance | Included in rent | $6,000 |
| Mortgage insurance (estimate) | — | $1,400 |
| Maintenance (1.5% of value) | Landlord pays | $4,200 |
| Renters insurance | $240 | — |
| Total annual outlay | $24,240 | $30,800 |
| Principal paid down (builds equity) | — | About $2,800 |
| Upfront cash needed | Deposit, often one month | Down payment $28,100 plus closing costs |
Hypothetical figures for illustration. Actual costs depend heavily on location, rates and the specific home.
In this example, owning costs more each month in the first year, but part of the payment builds equity, and the home may appreciate over time. Renting leaves more flexibility and cash for investing. Over longer periods, the comparison depends on home price growth, investment returns, how long you stay and the costs of buying and selling.
A good rule of thumb on timing
Buying and selling a home involves significant transaction costs, often several percent of the price each way. That’s why many experts suggest buying only if you expect to stay at least five years. If your job, relationship or city might change sooner, renting may be the smarter financial choice even if you can afford to buy.
Frequently asked questions
How much house can I afford on a $60,000 salary?
Using the 28% rule, a maximum housing payment of about $1,400 a month. How much home that buys depends heavily on interest rates, property taxes, insurance and your down payment.
Is it better to rent or buy?
It depends on how long you plan to stay, local prices, your job stability and your savings. Buying usually makes more sense if you plan to stay at least five years and have an emergency fund in place after closing.
Do lenders use gross or net income?
Lenders use gross income for DTI ratios. For your personal budget, it’s often wiser to plan around take-home pay.
Can I buy a house with student loans?
Yes. Lenders count your student loan payment in your DTI. Keeping payments manageable, for example through an affordable repayment plan, can help.
What credit score do I need to buy a house?
Minimums vary by loan type, often around 580 for some FHA loans and higher for conventional loans. Better scores usually mean lower rates.
Know your own number
Lenders often use the 28/36 rule: housing costs up to 28% of gross income and total debt up to 36%. But the right budget for you also accounts for maintenance, insurance, taxes and your other goals. Keep a full emergency fund after closing, and set your own price limit below what the lender approves if needed.
Try it now: Calculate 28% of your gross monthly income and subtract estimated taxes and insurance to see a rough principal-and-interest budget. Then compare it with what you’re paying in rent today and start saving the difference to test your comfort level.