How much house can I afford? Answer it before you browse a single listing — the answer comes from your income, your debts, and one rule lenders actually use: the 28/36 rule. Our free home affordability calculator applies that rule to your numbers in seconds; this guide explains what it is doing and how to use the result wisely.
Affordability is not the same as what a lender will approve you for — it is what fits your budget without stretching every paycheck. Below: the rule itself, a worked example with real numbers, and the three levers that move your ceiling.
What the 28/36 rule actually means
Lenders look at two ratios. The front-end ratio: your total monthly housing cost (P&I plus taxes, insurance, and HOA) should stay at or under 28% of your gross monthly income. The back-end ratio: your housing cost plus all other monthly debts — car loans, student loans, credit card minimums — should stay at or under 36% of gross monthly income.
Your affordable payment is the lower of the two limits. The rule exists because the debts you already carry eat into the housing budget — the back-end cap keeps the total load in check. Many lenders will approve beyond 36% on the back end, but 28/36 remains the conservative benchmark financial planners still teach.
How to estimate your affordable payment (5 steps)
- Take your gross monthly income. Annual salary ÷ 12. At $120,000 a year, that is $10,000 a month. Use gross (pre-tax) income — that is what lenders use.
- Compute the 28% housing cap. $10,000 × 0.28 = $2,800/month for housing.
- Compute the 36% debt cap. $10,000 × 0.36 = $3,600, then subtract your other monthly debts. With $500/month in debts: $3,600 − $500 = $3,100/month.
- Take the lower number. min($2,800, $3,100) = $2,800/month housing budget.
- Convert the payment into a home price. Use your mortgage rate and term to turn that payment into a loan amount, then add your down payment. Skip the algebra — the home affordability calculator runs all five steps in one go.
Worked example: $120,000 income
Annual income $120,000 ($10,000/month), other debts $500/month, down payment $60,000, mortgage rate 6.5% fixed for 30 years:
- 28% cap: $10,000 × 0.28 = $2,800/month
- 36% cap: ($10,000 × 0.36) − $500 = $3,100/month
- Housing budget = the lower of the two = $2,800/month
- Loan supported by $2,800/month at 6.5% over 30 years ≈ $443,000
- Max home price ≈ $443,000 + $60,000 down = $503,000
So on a $120,000 income with modest debts and $60,000 saved, a home around $500,000 is the textbook ceiling — and because debts were low here, the 28% rule was the binding one. If those debts were $1,500/month instead, the back-end cap would fall to $2,100 and take over. Once you have a target price, check the monthly payment with the mortgage calculator.
The three levers that move your number
Income raises both caps directly — a raise or a second earner lifts the ceiling. Debts cut the back-end cap dollar for dollar: paying off a $400/month car loan can add roughly $60,000–$70,000 to your price ceiling at typical rates. Down payment does not change the payment caps, but a bigger one buys a pricier home for the same monthly payment and can eliminate PMI. The rate matters too — the same $2,800 payment supports a far larger loan at 5% than at 8%.
Common mistakes to avoid
- Shopping at your pre-approval amount. A pre-approval is the lender's ceiling, not your budget. Taxes, insurance, and maintenance still come out of your paycheck.
- Forgetting the “hidden” monthly costs. Homeowners insurance, property tax, HOA dues, plus roughly 1% of the home's value per year in maintenance — none of it is in the P&I figure.
- Mixing gross and net income. The 28/36 rule uses gross income for both ratios. Using take-home pay skews the result and understates what you can afford.
- Ignoring future costs. Childcare, a car replacement, or an adjustable rate resetting can all shrink what “affordable” means. Leave margin.
- Skipping the debt-payoff math. Clearing high-interest debt first often raises your ceiling more than saving a slightly bigger down payment — and it lowers your risk. See how balances snowball over time with our compound interest calculator.
A quick note
This guide is for general information only and is not financial advice. Home prices, rates, taxes, and lending rules change frequently and vary by lender and state — confirm every figure with a licensed lender before making decisions. Nothing here is a recommendation to buy, borrow, or choose any particular product.