How Much House Can You Actually Afford?
"How much house can I afford?" is one of the most consequential questions in personal finance, and one of the most poorly answered. Online calculators will give you a number based on a formula — but the formula doesn't know your life. Here's how to use the rules of thumb without being ruled by them.
The 28/36 rule
The traditional guideline: your housing costs (mortgage principal, interest, taxes, insurance) should not exceed 28% of your gross monthly income. Total debt payments — housing plus car, student loans, credit cards — should not exceed 36%.
On a $100,000 salary ($8,333/month gross), that means housing under $2,333/month and total debt under $3,000/month. Many lenders will approve you for more — sometimes up to 43% or even 50% total debt to income — but "approved for" and "comfortable with" are different things.
Why gross income is misleading
The 28/36 rule uses gross income, but you pay your mortgage with net income. On a $100,000 salary, your take-home might be $72,000 — about $6,000/month. A $2,333 housing payment is 39% of your take-home pay, not 28%. That's the number you actually feel.
A more conservative approach: cap housing at 25–30% of your net monthly income. It sounds stricter, but it protects you from being house-poor — technically affording the payment but unable to save, travel, or absorb a surprise expense.
What lenders don't count
Pre-approval calculators ignore several real costs:
- Maintenance — budget 1% of home value per year for repairs and upkeep.
- HOA fees — can be $50 to $500+ a month and rise over time.
- Utilities — often higher in a house than an apartment.
- Closing costs — 2–5% of purchase price, due at closing.
- Moving and furnishing — easily several thousand dollars in the first year.
The down payment effect
A 20% down payment avoids PMI (private mortgage insurance), which typically costs 0.5–1.5% of the loan amount per year. On a $400,000 home with 10% down, that's $1,800 to $5,400 a year in insurance you pay for no benefit to you. If you can reach 20%, it's usually worth delaying a purchase slightly to get there.
The lifestyle test
Before you sign, run one more calculation: subtract the proposed housing payment from your take-home pay, then subtract your other fixed expenses (car, insurance, groceries, utilities). What's left is your discretionary income. If it's tight, or negative, you can't afford the house — no matter what the bank says.
The best rule: buy less house than you can afford. The extra margin gives you room for life's surprises, and it means you're never one emergency away from being in trouble. A mortgage calculator shows the numbers; only you can decide whether they leave enough breathing room.