One of the most important questions in home buying is: 'How much can I afford?' The answer depends on more than just your salary.
The 28/36 Rule
Lenders use the 28/36 rule as a guideline:
- 28%: Your monthly housing costs should not exceed 28% of your gross monthly income
- 36%: Your total monthly debt payments (including housing) should not exceed 36% of your income
Example
Annual income: $80,000 ($6,667/month)
- Max housing cost: $6,667 ร 28% = $1,867/month
- Max total debt: $6,667 ร 36% = $2,400/month
Factors That Affect Affordability
| Factor | Impact |
|---|---|
| Down payment | Larger down = lower monthly payment |
| Interest rate | Higher rate = higher payment |
| Property taxes | Varies by location, adds $100-500/month |
| Home insurance | Required by lenders, ~$100-200/month |
| PMI | Required if down < 20% |
| HOA fees | Can add $50-500/month |
Affordability by Income
| Income | 28% Housing | Est. Home Price |
|---|---|---|
| $50,000 | $1,167 | ~$180,000 |
| $75,000 | $1,750 | ~$275,000 |
| $100,000 | $2,333 | ~$370,000 |
| $150,000 | $3,500 | ~$560,000 |
| $200,000 | $4,667 | ~$750,000 |
*Assumes 20% down, 6.5% rate, 30-year term, ~1.25% taxes & insurance*
Steps to Determine Your Budget
1. Calculate your gross monthly income
2. Add up your monthly debts (car loans, student loans, credit cards)
3. Determine your down payment (aim for 20% to avoid PMI)
4. Use our Mortgage Calculator with different home prices
5. Get pre-approved by a lender for a precise number
๐ก Pro Tip: Just because a lender approves you for a certain amount doesn't mean you should spend that much. Aim for a monthly payment you're comfortable with โ not the maximum.
*Use our Mortgage Calculator to find your affordable home price.*
