How Much House Can You Afford? The 28/36 Rule Explained

The honest answer to “how much house can I afford?” is not a single number — it is the price at which your monthly payment still leaves room for everything else in your life. Lenders answer it with two ratios; this guide explains them, shows how they set your real budget, and points you to the calculator that does the math.

The 28/36 rule, explained

Most mortgage underwriting still anchors on two limits. The front-end ratio says your total housing payment — principal, interest, property taxes, and insurance — should stay under 28% of your gross monthly income. The back-end ratio says all of your debt payments combined, including that housing payment plus car loans, student loans, and credit card minimums, should stay under 36%.

Whichever limit you hit first sets your budget. Someone with no other debt is usually capped by the 28% housing rule; someone with a big car payment and student loans is capped by the 36% total-debt rule, well before the housing limit bites.

Why your down payment matters twice

A larger down payment helps in two separate ways. First, every dollar down is a dollar you do not have to finance, so it raises the price you can reach. Second, crossing 20% down removes private mortgage insurance, freeing $100 to $300 a month that would otherwise protect the lender instead of buying you more house.

What counts as debt (and what does not)

The back-end ratio counts recurring credit obligations. It does not count the everyday costs lenders assume come out of whatever is left:

• Counts: car loans, student loans, personal loans, and minimum credit-card payments.
• Does not count: utilities, groceries, phone plans, insurance premiums, or subscriptions.

This is why paying down a car loan or a credit card before you apply can raise your maximum price more than saving another few thousand for the down payment.

A worked example

Take a household earning $110,000 a year — $9,167 a month before tax. The 28% front-end limit allows $2,567 of total housing cost. The 36% back-end limit allows $3,300 of all debt combined.

With no other debt, the housing limit binds first: $2,567 is the ceiling. Out of that, property tax and insurance have to be paid before a single dollar reaches the loan. Assume $400 a month of tax and $150 of insurance, and only $2,017 is left for principal and interest. At 6.5% over 30 years, $2,017 a month supports a loan of roughly $319,000 — so about $399,000 of house with 20% down.

Now give the same household a $450 car payment and $200 of student loans. The back-end limit becomes the binding one: $3,300 minus $650 leaves $2,650 for housing, which is more than the 28% rule allows anyway — so the housing limit still binds, but only just. Add another $300 of debt and the back-end rule takes over, cutting the affordable price by tens of thousands.

That asymmetry is the practical lesson. Debt does not reduce your budget dollar for dollar — it reduces it by roughly the price a mortgage payment of that size would have bought, which at current rates is around 160 times the monthly payment.

What the ratios quietly ignore

The 28/36 rule covers the payment. It says nothing about the cost of owning the thing the payment buys, and this is where first-time buyers are most often caught out:

• Maintenance. A common planning figure is 1% of the home's value a year — $4,000 on a $400,000 house. Some years it is nothing; the year the roof goes it is $15,000.
• Utilities. A house usually costs more to heat, cool and light than the apartment it replaced, often by $100 to $250 a month.
• Closing costs. Typically 2–5% of the loan, due in cash on top of the down payment.
• Furnishing the space. Rarely budgeted, reliably spent.
• HOA fees, where they apply — and they are counted by lenders, unlike utilities.

None of this appears in a pre-approval letter. A payment that fits the ratios exactly can still leave a household with no margin once the house itself starts asking for money.

How much the rate moves your budget

Rates change what a given payment buys far more than most buyers expect. Holding the payment at $2,000 a month of principal and interest on a 30-year loan:

• At 5%, that payment supports roughly $373,000 of loan.
• At 6%, roughly $334,000.
• At 7%, roughly $301,000.
• At 8%, roughly $273,000.

Three percentage points is about a quarter of your buying power. This is why waiting for prices to fall while rates rise often leaves buyers no better off — and why a rate that later drops can be refinanced, whereas a price you overpaid cannot be renegotiated.

Where you buy changes the answer

Two identical incomes buying identical houses can afford very different prices depending on the state, because property tax is inside the 28% limit. At Hawaii's median effective rate the tax on a $400,000 home is under $1,200 a year; in New Jersey it is closer to $8,900. That difference — several hundred dollars a month — comes straight out of what you can spend on the loan itself. Our mortgage calculator by state opens with your state's rate already applied, so the payment you see is a local one rather than a national average.

Loan type changes the limits

The 28/36 rule is a convention, not a law, and different programmes bend it differently:

• Conventional loans generally want a back-end ratio at or under 45%, and 20% down to avoid PMI.
• FHA loans allow back-end ratios into the mid-50s with compensating factors, and as little as 3.5% down — but carry mortgage insurance for the life of the loan in most cases.
• VA loans, for eligible service members and veterans, allow 0% down with no monthly mortgage insurance, and use a residual-income test alongside the ratios.
• USDA loans cover designated rural areas with 0% down and their own income caps.

A programme that lets you borrow more is not the same as a programme that costs you less. FHA's looser ratios come with insurance you often cannot cancel; the extra house it buys is paid for every month, forever.

How to raise your number

In rough order of how much they move the figure per unit of effort:

• Clear a monthly debt payment. Removing a $450 car payment can add roughly $70,000 of purchasing power — usually more than any realistic extra saving.
• Raise your credit score. The gap between a 660 and a 760 score is often half a percentage point of rate, which is worth tens of thousands of price.
• Cross 20% down. It removes PMI, and that freed payment goes straight into the loan you can support.
• Add a co-borrower. Their income counts — but so do their debts, which sometimes makes the total worse.
• Shop the rate. Half a point of difference between lenders is common and costs nothing but a week of forms.

Approvable is not the same as comfortable

Lenders will sometimes stretch these ratios — FHA loans routinely allow back-end ratios into the mid-40s. But the maximum a lender will approve is rarely the amount you want to actually live with. A payment that consumes 43% of your income leaves little margin for a job change, a new baby, or a bad year. Many planners suggest borrowing below what the ratios allow, not up to it.

One practical test: work out the payment at your maximum price, then live on the difference between it and your current rent for three months, moving the gap into savings. If that feels tight before you own anything, the true ceiling is lower than the lender's.

Run your own number

Plug your income, existing debts, down payment, and rate into the home affordability calculator. It applies the 28/36 rule exactly as a lender would, tells you which limit is binding for you, and shows the full monthly breakdown — including PMI if your down payment is under 20% — at the maximum price. Then check the payment itself in the mortgage calculator, and see what clearing a debt would do in the debt payoff calculator.