How Much House Can I Afford?
How much house you can afford depends on your income, debts, down payment, interest rate, and the debt-to-income (DTI) ratio your loan program allows. A common guideline is the 28/36 rule: spend no more than 28% of gross monthly income on housing costs and no more than 36% on total debt. For a household earning $100,000/year with $500/month in existing debt and a 7% mortgage rate, the affordable purchase price ranges from approximately $330,000 (conservative) to $420,000 (aggressive DTI). FHA allows DTI up to 57%, while conventional programs typically cap at 43-50%.
Key Facts
The 28/36 Rule Explained
The 28/36 rule is a widely used guideline for home affordability. The first number (28%) means your total monthly housing payment — principal, interest, taxes, insurance, and HOA — should not exceed 28% of your gross monthly income. The second number (36%) means your total monthly debt payments — housing plus car loans, student loans, credit cards, and other obligations — should not exceed 36% of gross income. For a household earning $8,333/month ($100,000/year), the 28% housing limit is $2,333/month and the 36% total debt limit is $3,000/month.
How DTI Ratios Vary by Loan Type
Different loan programs allow different DTI ratios, which directly affects how much house you can afford. Conventional loans typically cap at 43-45% total DTI, though some allow up to 50% with strong compensating factors (high credit score, large reserves). FHA allows up to 57% DTI with compensating factors — making FHA the most flexible for buyers with existing debt. VA loans use a residual income test rather than a hard DTI cap, meaning qualified veterans may exceed 50% DTI if they have sufficient residual income after all obligations. USDA caps at 41% DTI.
Factors That Expand or Shrink Your Budget
Several factors significantly affect how much house you can afford beyond your income: Down payment size — a larger down payment reduces the loan amount, lowering your monthly payment and potentially eliminating PMI. Interest rate — every 1% rate change shifts your buying power by approximately 10%. A buyer who qualifies for $400,000 at 6% might only qualify for $360,000 at 7%. Property taxes — these vary dramatically by location, from 0.5% to 2.5%+ of home value. Homeowners insurance — varies by coverage level, location, and property type. HOA dues — can add $200-$800+/month in condo and planned community settings.
Using a Mortgage Calculator to Test Scenarios
The most practical approach to determining your budget is to model multiple scenarios with a mortgage calculator. Start with your gross monthly income, subtract your existing monthly debt payments, and test different purchase prices at current interest rates. Our free mortgage payment calculator lets you adjust home price, down payment, rate, and loan term in real time — showing your exact monthly payment, total interest, and amortization schedule. Try modeling three scenarios: a conservative budget (25% DTI), a moderate budget (32% DTI), and the maximum your loan program allows. The right budget is the one where the payment feels comfortable, not just the one that qualifies.
Home Affordability by DTI Ratio
$100K income, $500/mo existing debt, 7% rate, 10% down
| Conservative (28%) | Moderate (36%) | Aggressive (45%) | |
|---|---|---|---|
| Housing Budget/Mo | $2,333 | $2,500 | $3,250 |
| Approx. Purchase Price | $330,000 | $360,000 | $420,000 |
| Loan Amount (90% LTV) | $297,000 | $324,000 | $378,000 |
| P&I Payment | $1,976 | $2,156 | $2,515 |
| Remaining for T&I | $357 | $344 | $735 |
| Comfort Level | Very comfortable | Comfortable | Stretched |
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