How Much House Can I Afford? The 28/36 Rule and the Costs Nobody Mentions
“What will the bank approve?” and “What can I actually afford?” are two different questions, and confusing them is how people end up house-rich and cash-poor. This guide gives you the lender’s math, a more conservative personal version, and the full cost picture — so the number you shop with is one you can live with.
The 28/36 rule
Lenders commonly use two ratios. The front-end ratio: housing costs (principal, interest, property taxes, homeowner’s insurance, and HOA dues — “PITI+HOA”) should be no more than about 28% of your gross monthly income. The back-end ratio: housing costs plus all other monthly debt payments (car, cards, student loans) should be no more than about 36% of gross income. Lenders can and do stretch beyond these on some loans, which is why your personal budget — not the approval letter — should set your ceiling. The CFPB’s homebuying resources walk through the same framework.
A worked example
Household gross income: $90,000 a year, or $7,500 a month. The 28% front-end cap is $2,100 a month for PITI+HOA. Suppose taxes and insurance in your area run about $450 a month combined — that leaves roughly $1,650 for principal and interest. At a 6.5% rate on a 30-year fixed loan, $1,650 a month supports a loan of about $261,000. Now check the back-end: 36% of $7,500 is $2,700. If you already pay $420 toward a car and student loans, housing must fit in $2,280 — the front-end rule ($2,100) is still the binding one in this example. Run your own numbers in the mortgage calculator.
The down payment trade-off
Twenty percent down avoids private mortgage insurance (PMI) on conventional loans and shrinks the loan, but it is not a law of nature. Many buyers put down less — first-time buyer programs and FHA loans go lower — and for some, buying sooner with less down beats saving for years while prices move. The honest trade-off: less down means a bigger loan, higher monthly payments, PMI cost (which typically falls away at 20% equity on conventional loans), and more total interest. More down means less cash left for your emergency fund — and draining your safety net to buy a house is a trade that backfires often. Keep your emergency fund intact.
The costs nobody puts in the listing
- Property taxes and homeowner’s insurance — often escrowed monthly, and they rise over time.
- PMI if you put down less than 20% on a conventional loan.
- HOA dues, where applicable.
- Maintenance and repairs — a common planning rule is to budget roughly 1% of the home’s value per year, averaged over time.
- Closing costs, typically 2–5% of the loan amount, paid at purchase.
- Utilities and furnishing a bigger space than you rent now.
A calmer affordability checklist
- Compute your 28/36 numbers, then pick the lower result.
- Subtract realistic taxes, insurance, and HOA before looking at listings.
- Stress-test: could you still pay this if income dropped 10% for six months?
- Keep three to six months of the new, higher expenses in reserve after closing.
- Get pre-approved, but shop to your budget number — not the approval number.
A house is likely the biggest financial commitment of your life. An hour with these ratios — and a credit checkup first (see How Credit Scores Work) — is the cheapest insurance you will ever buy.
Frequently asked questions
What is the 28/36 rule?
Housing costs at or below 28% of gross monthly income, and housing plus all other debts at or below 36%. It’s a lender guideline — your own budget may say less.
How much do I need for a down payment?
It varies by loan type, from 0–3.5% on some programs to 20% to avoid PMI. A larger down payment lowers monthly costs but shouldn’t wipe out your emergency savings.
Does the mortgage calculator include taxes and insurance?
No — it shows principal and interest only, so budget taxes, insurance, and HOA on top.
Sources: Consumer Financial Protection Bureau (ConsumerFinance.gov), homebuying and mortgage guides; CFPB “Owning a Home” tools.
Your next steps
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This article is educational and is not financial, tax, or legal advice. See our disclaimer.