How Much House Can I
Actually Afford?
Your bank will tell you one number. Here's the honest calculation — including the four costs that turn 'affordable' homes into financial stress.
Honest Truth About Affordability Rules
Your bank will tell you that you can afford significantly more house than you can actually afford. Mortgage lenders are not your financial advisors — they're businesses that make money when you borrow more. The maximum they'll lend you and the amount that makes sense for your financial life are often very different numbers.
The traditional rule is that housing costs should be no more than 28% of gross monthly income. Most lenders will approve you up to 43–50% debt-to-income ratio. The difference between 28% and 43% is the difference between owning your home and your home owning you.
Being approved for a $650,000 mortgage on a $130,000 income does not mean you can comfortably afford a $650,000 home. It means the lender has determined you can make the payments without defaulting — a very different bar than 'financially healthy.'
Real Affordability Calculation
Use these three rules together. The most conservative result is your real ceiling.
| Rule | Formula | Example ($100K income) |
|---|---|---|
| 28% Rule (housing costs) | Gross monthly income × 0.28 | $8,333 × 0.28 = $2,333/mo max |
| 36% Rule (all debt) | Gross monthly income × 0.36 minus non-housing debt | $8,333 × 0.36 - $400 car = $2,600/mo max |
| 3× Income Rule (price) | Annual income × 3 | $100,000 × 3 = $300,000 max purchase price |
| Bank Approval (ignore this) | Up to 43–50% DTI | Up to $650,000+ — this is too much |
The 3× income rule produces a conservative but genuinely comfortable homeownership situation. The 28% rule for monthly payment is the practical monthly check. If both those numbers align with a home you're considering, it's likely within reach. If you need to stretch either rule significantly, that's a signal to wait or buy less.
Take any home price, subtract your down payment to get loan amount. At today's 6.82% 30-year rate, multiply loan amount × 0.0066 to get approximate monthly principal + interest. Add property taxes (divide annual by 12), homeowner's insurance ($150–300/month), and PMI if less than 20% down ($100–200/month). That full number — not just P&I — is your true monthly housing cost.
Four Costs Everyone Forgets
First-time buyers almost always underestimate the true cost of homeownership because they focus on the mortgage payment. Here are the four costs that can turn an 'affordable' home into an unaffordable one.
- Maintenance and repairs: Budget 1–2% of home value per year. A $400,000 home costs $4,000–$8,000 per year in maintenance on average. Some years nothing. Some years a new roof ($15,000) or HVAC ($10,000).
- Property taxes: Vary enormously by location — from 0.3% (Hawaii) to 2.4%+ (New Jersey). A $400,000 home in NJ pays $9,600/year in property taxes alone. Check your specific location.
- HOA fees: Can range from $0 to $1,000+/month. Factor these into your monthly payment calculation before falling in love with a property.
- Opportunity cost: A 20% down payment on a $400,000 home is $80,000. Invested at 7%, that $80,000 becomes $314,000 in 20 years. This isn't a reason not to buy — but it's a real cost of homeownership that never appears on a closing statement.
Buying Power by Income
| Household Income | Conservative (3× Rule) | Moderate (4× Rule) | Estimated Monthly Payment |
|---|---|---|---|
| $50,000 | $150,000 | $200,000 | $950–$1,300/mo |
| $75,000 | $225,000 | $300,000 | $1,430–$1,900/mo |
| $100,000 | $300,000 | $400,000 | $1,900–$2,550/mo |
| $150,000 | $450,000 | $600,000 | $2,850–$3,800/mo |
| $200,000 | $600,000 | $800,000 | $3,800–$5,100/mo |
At 6.82% on a 30-year fixed mortgage (April 2025), the monthly payment on a $300,000 loan is approximately $1,968/mo before taxes and insurance. When rates drop, buying power increases significantly — a 5.5% rate on the same loan saves ~$240/month.
Much Down Payment Do You Need?
You do not need 20% down. But the amount you put down has significant financial consequences beyond just the monthly payment.
- 3–3.5% down: FHA (3.5%) or conventional (3%) loans available. Requires mortgage insurance. Lowest barrier, highest monthly cost.
- 10% down: Lower PMI, more equity from day one, better loan terms available.
- 20% down: No PMI required. On a $400K home, 20% down saves $150–200/month in PMI. That's $1,800–$2,400/year — roughly $54,000 over a 30-year loan.
- More than 20%: Generally not recommended — preserving cash for an emergency fund and other investments is typically a better use of capital.
Flags That You're Buying Too Much House
- You're using all of your savings for the down payment — closing costs (2–5% of purchase price) and an emergency fund must exist separately from your down payment. If the down payment cleans you out, you're not ready.
- You need both incomes to qualify — dual-income approval is fine; but if losing one income would immediately make payments unaffordable, that's a meaningful risk to understand before signing.
- You're planning to make more money — basing affordability on a future raise or promotion is gambling with your largest financial commitment.
- The monthly payment is more than 30% of your take-home pay — note take-home, not gross. 30% of take-home is closer to 20% of gross. That's the real comfort zone.
- You haven't budgeted for maintenance — if the mortgage payment works but there's no room for a $10,000 repair, you'll end up back in debt when something breaks.