How much house can I afford?

Home affordability isn’t just about whether a lender will approve you — it’s about whether the monthly payment leaves room for your other goals. Lenders use income ratios to set a ceiling on what they’ll lend; you should also set a floor based on what you actually want your financial life to look like. Here’s how to think through both.

The 28/36 rule

A widely cited rule of thumb in mortgage lending is the 28/36 guideline. It says your monthly housing costs (PITI) should not exceed 28% of your gross monthly income, and your total monthly debt obligations should not exceed 36%. These thresholds originate from conventional mortgage underwriting guidelines established by Fannie Mae and Freddie Mac.^[1]

For example, if your household earns $7,000 per month gross, the 28% front-end limit puts your maximum housing payment at $1,960. The 36% back-end limit means your total debt payments — mortgage plus car loans, student loans, and credit card minimums — should stay under $2,520.

These are guidelines, not hard rules. Many lenders will approve loans at higher ratios for borrowers with strong credit, significant reserves, or other compensating factors. But exceeding these thresholds typically means less financial flexibility for savings, retirement contributions, and unexpected expenses.

Debt-to-income ratio (DTI): what lenders actually use

Lenders focus most on your back-end debt-to-income (DTI) ratio — total monthly debt payments divided by gross monthly income. The CFPB identifies DTI as one of the most important factors in the mortgage approval decision. For conventional loans, most lenders prefer a DTI of 43% or lower; Fannie Mae’s automated underwriting can approve up to 50% DTI in some cases.^[2] FHA loans also permit higher DTI with compensating factors.

A lower DTI not only improves your approval odds — it often improves the rate you’re offered. Paying down existing debt before applying for a mortgage is one of the most effective ways to improve affordability.

Down payment size and its effects

The size of your down payment affects affordability in three ways. First, a larger down payment reduces the loan amount, which lowers your monthly principal and interest. Second, putting down 20% or more on a conventional loan eliminates private mortgage insurance (PMI), which typically adds 0.5%–1.5% of the loan amount to your annual costs.^[3] Third, a larger down payment reduces your loan-to-value (LTV) ratio, which can qualify you for a lower interest rate.

That said, draining savings entirely for a large down payment can leave you without a cash cushion after closing. Most financial planners recommend keeping 3–6 months of expenses in reserve even after the down payment and closing costs are paid.

How your credit score affects what you can afford

Your credit score directly determines your mortgage interest rate, which is the single biggest driver of your monthly payment over time. According to FICO, borrowers with scores above 760 typically receive the lowest available rates; rates rise meaningfully as scores fall below 700, and can increase significantly below 620 — where conventional financing becomes difficult to obtain.^[4]

The difference between a 6.0% and 7.0% rate on a $350,000 30-year mortgage is approximately $215 per month — nearly $77,000 in total interest over the life of the loan. Improving your credit before applying can expand what you can comfortably afford more than almost any other single action.

Don’t forget ongoing homeownership costs

The monthly mortgage payment is not the only cost of owning a home. Financial planners commonly suggest budgeting 1%–2% of the home’s value annually for maintenance and repairs — on a $350,000 home, that’s $3,500–$7,000 per year, or roughly $290–$580 per month that doesn’t appear in any mortgage calculator. Add in utilities, HOA fees (if applicable), and the opportunity cost of capital tied up in the down payment, and the true cost of homeownership is meaningfully higher than the PITI payment alone.

Lender approval vs. what you should actually borrow

Being approved for a loan amount and being able to comfortably afford that loan are different things. Lenders set ceilings based on income ratios; they don’t know your childcare costs, your retirement savings rate, your travel budget, or how much financial cushion matters to you. Many buyers find that borrowing 10%–20% less than the maximum approval they receive leaves them more financially comfortable.

The most useful exercise before house-hunting is to calculate the monthly payment at several price points and compare those numbers to your current budget — not just against a ratio. A home affordability calculator can show you how purchase price, down payment, interest rate, taxes, and insurance all combine into a single monthly number you can evaluate against your actual spending.