One of the biggest questions for homebuyers is: “How much house can I afford?” It’s tempting to aim for your dream home, but affordability goes beyond what a lender approves. A smart budget balances your mortgage payment with other homeownership costs, your lifestyle, and long-term financial goals.
This guide walks you through the key factors, rules of thumb, and calculations to figure out a home price you can comfortably afford—without sacrificing financial security.
Think Beyond Approval
Lenders might approve you for more than you can handle. Base your budget on what you can sustain, not just what you qualify for.
Factors That Determine Affordability
Your home-buying budget hinges on several variables. Here’s what to consider:
- Income: Your gross monthly income sets the foundation.
- Debt: Existing payments (car loans, student loans, credit cards) reduce what you can allocate to housing.
- Down Payment: The more you put down, the less you borrow.
- Credit Score: A higher score means better interest rates, lowering your monthly costs.
- Interest Rates: Current market rates affect your mortgage payment.
- Other Costs: Taxes, insurance, and maintenance add to your total burden.
Rules of Thumb for Affordability
These common guidelines help estimate a safe home price:
1. The 28/36 Rule
Housing Costs (28%):
Your mortgage, taxes, and insurance should not exceed 28% of your gross monthly income.
Total Debt (36%):
Housing plus all other debts (e.g., car payments) should stay under 36% of income.
Example: With $6,000/month income, housing costs should be $1,680 or less, and total debt $2,160 or less.
2. The 2.5-3x Income Rule
Quick Estimate:
Multiply your annual income by 2.5-3 to get a rough home price range.
Example: $80,000/year x 3 = $240,000 home price (assumes a solid down payment and low debt).
Adjust for Your Situation
High debt or a small down payment? Stick to the lower end of these ranges. Low debt and savings? You might stretch closer to 3x.
Calculating Your Affordable Home Price
Let’s put it all together with a step-by-step process:
- Assess Your Income: Use your gross monthly income (before taxes).
- List Your Debts: Add up monthly payments for loans and credit cards.
- Set a Housing Budget: Apply the 28% rule to find your max housing cost.
- Estimate Extra Costs: Add taxes (1-2% of home value), insurance ($100-$250/month), and PMI if down payment <20%.< /li>
- Back Into a Loan Amount: Subtract extras from your housing budget, then calculate the loan size based on current rates.
- Add Your Down Payment: Combine your loan amount with your savings to get the total home price.
Real-World Example
Income: $6,000/month | Debt: $400/month | Down Payment: $30,000 | Rate: 4.5% (30-year fixed)
- Max Housing Cost: $6,000 x 28% = $1,680
- Extras: Taxes ($300), Insurance ($150), PMI ($100) = $550
- Mortgage Payment: $1,680 - $550 = $1,130
- Loan Amount: $1,130/month at 4.5% = ~$223,000 (30-year fixed)
- Home Price: $223,000 + $30,000 = $253,000
This buyer can afford a $253,000 home—assuming they’re comfortable with this budget.
Factors That Stretch or Shrink Your Budget
Increasing Affordability
Bigger Down Payment:
$50,000 down instead of $30,000 bumps the example to $273,000.
Better Credit:
A 4% rate (vs. 4.5%) raises the loan to $236,000, making the home $266,000.
Reducing Affordability
High Debt:
$1,000 in debt drops the housing budget to $1,160 (36% rule), cutting the home price to $210,000.
Rising Rates:
A 5% rate lowers the loan to $210,000, reducing the home to $240,000.
Tools to Fine-Tune Your Number
Use these to get precise:
- Mortgage Calculator: Plug in rates, terms, and down payments.
- Debt-to-Income (DTI) Ratio: Divide total monthly debt by income—keep it under 36%.
- Pre-Approval: A lender’s assessment gives a realistic ceiling (but stay conservative).
Lifestyle Check
Can you still save, travel, or handle emergencies? If a home price cuts too deep into your income, scale back.
What If You’re Stretched Thin?
If your target home exceeds your budget:
- Lower Your Sights: Look at smaller homes or different areas.
- Boost Income: Add a side hustle or wait for a raise.
- Save More: Delay buying to increase your down payment.
- Use Programs: First-time buyer incentives can stretch your dollars.
Find Your Perfect Home Price
Use our mortgage calculator to test different scenarios and see what fits your budget.
Try Our CalculatorFinal Thoughts
Determining how much house you can afford is about more than math—it’s about finding a balance between your housing goals and financial health. Use the 28/36 rule, factor in all costs, and adjust for your unique situation. With a clear budget, you’ll buy a home you love without risking your peace of mind.