How Much House Can I Afford? A Simple Step-by-Step Guide

By the USPaycheckGuide Editorial Team · Last updated September 26, 2026

Lenders will tell you the most you can borrow. That is not the same as the most you should spend. Here is a practical way to find a home price that fits your life, not just a spreadsheet.

1. Start With Your Income and the 28/36 Rule

The 28/36 rule is a long-standing guideline: spend no more than 28% of gross monthly income on housing and no more than 36% on total debt payments. Someone earning $7,000 a month before taxes would aim for a housing payment near $1,960 and total debts near $2,520.

Lenders may approve higher ratios, especially for certain loan types, but the guideline is a useful sanity check. You can measure your own ratios with our debt-to-income calculator.

2. Count the Full Monthly Cost (PITI and More)

A mortgage payment typically includes principal, interest, property taxes and homeowners insurance — known as PITI. Add private mortgage insurance if your down payment is below 20%, plus HOA dues if applicable.

Then add costs that never appear on a loan estimate: utilities, lawn care, and maintenance. A frequent rule of thumb is to set aside 1% or more of the home's value per year for repairs.

3. Decide How Much You Can Put Down

A larger down payment lowers your loan, your monthly payment and often your interest rate. Putting down 20% avoids PMI on conventional loans, but many buyers purchase with less. Government-backed programs such as FHA loans allow lower down payments, with their own insurance costs.

Do not drain your emergency fund for the down payment. Owning a home brings surprise expenses, and you will want cash reserves after closing. See our guide on building an emergency fund.

4. Budget for Closing Costs

Closing costs commonly run 2% to 5% of the purchase price and include lender fees, appraisal, title insurance and prepaid taxes and insurance. On a $350,000 home that could be $7,000 to $17,500 on top of your down payment.

5. Test Different Scenarios

Use our mortgage payment calculator to compare prices, rates and loan terms. Try a rate one point higher than today's to see whether your budget survives if rates rise before you lock.

6. Get Pre-Approved, But Set Your Own Limit

A pre-approval letter shows sellers you are serious and reveals your likely rate. Treat the approved amount as a ceiling, not a target. Decide on a monthly payment that leaves room for saving, retirement contributions and fun, and shop within that number.

7. A Worked Example: $90,000 Income

Suppose you earn $90,000 a year, which is $7,500 a month before taxes. The 28% guideline gives a housing budget of about $2,100 a month, and the 36% guideline caps all debt payments near $2,700. If you already pay $500 a month toward a car and student loans, the 36% rule leaves $2,200 for housing, so the tighter 28% figure of $2,100 is the limit that applies.

With $60,000 saved for a down payment, a 6.5% rate on a 30-year loan and taxes plus insurance near 1.6% of the price per year, that $2,100 budget supports a home priced around $324,000. Change any of those inputs and the answer moves: a one-point lower rate could add roughly $35,000 of buying power, while a $10,000 smaller down payment removes about $12,000. Test your own combination with the home affordability calculator.

8. Common Mistakes First-Time Buyers Make

• Shopping at the approval ceiling. A lender approves what your ratios allow, not what fits your life with childcare, travel and savings goals.
• Forgetting ownership costs. Maintenance, HOA dues and rising insurance are not in the loan estimate.
• Spending the whole down payment. Keep a cash reserve for the first year of repairs and moving.
• Ignoring rate sensitivity. Test your budget at a rate one point higher than today.
• Skipping comparison shopping. Quotes from several lenders can differ by thousands over the loan.

9. Key Takeaways

• Start with the 28/36 guideline, then adjust for your own priorities.
• Count principal, interest, taxes, insurance, PMI, HOA and maintenance.
• Keep a cash cushion after closing.
• Get pre-approved, but set your own lower limit.

10. Step-by-Step: How to Calculate Your Own Home Budget

Follow these steps in order and you will end up with three numbers: the most you could borrow, the most you should borrow, and the price you will actually shop at.

1. Start with gross monthly income. Divide your yearly income before taxes by twelve. If you and a co-borrower both appear on the loan, add both incomes, but also add both sets of debts.
2. Apply the 28% rule. Multiply gross monthly income by 0.28. That is the target ceiling for your housing payment: principal, interest, property tax, homeowners insurance, and HOA dues.
3. Apply the 36% rule. Multiply gross monthly income by 0.36 and subtract your existing monthly debt payments (car, student loans, credit card minimums). Whichever result is smaller, the 28% figure or the 36% figure, is your maximum housing payment.
4. Convert the payment into a price. Part of the payment goes to taxes and insurance (often 1.2% to 2% of the price per year). The rest pays principal and interest, which depends on your rate and term. Our home affordability calculator does this conversion for you.
5. Add your down payment. The price you can afford is the loan amount you qualify for plus the cash you put down.
6. Subtract closing costs and reserves. If your savings are $60,000 and closing costs will be $9,000, your true down payment budget is closer to $45,000 to $50,000 once you keep a cushion.
7. Stress-test the payment. Rerun the numbers at a rate one point higher, and with a 10% jump in property taxes. If the payment still fits your real monthly budget, you have a safe number.

11. How Income, Debt, Down Payment and Rate Change Your Buying Power

The table below applies the 28/36 guideline to several households using a 30-year loan and property tax plus insurance of about 1.6% of the price per year. The figures are estimates for illustration, and your lender will use its own rules.

Three patterns stand out. First, income drives the ceiling, but debts can lower it: the last row shows how a household with $1,200 of monthly debts loses buying power compared with one carrying $500. Second, interest rates matter enormously: on the same income and down payment, moving from 5.5% to 7.5% cuts the price you can afford by tens of thousands of dollars. Third, a larger down payment raises the price you can reach because it reduces the amount you must finance.

12. Loan Types and How They Affect Affordability

The type of mortgage you choose changes both the cash you need at closing and the monthly payment.

• Conventional loans typically require 3% to 20% down. With less than 20% down you pay private mortgage insurance until your equity grows. Borrowers with strong credit often get the best rates here. See what PMI is and how to avoid it.
• FHA loans allow down payments as low as 3.5% and more flexible credit standards, but include mortgage insurance premiums. Read FHA loans explained.
• VA loans can offer zero down payment and no monthly mortgage insurance for eligible service members and veterans. See VA loans explained.
• USDA loans serve eligible rural and suburban areas with income limits and may allow no down payment.
• Adjustable-rate mortgages start with a lower rate that can change later, which is why our fixed vs adjustable guide recommends checking the worst-case payment.

13. The Hidden Costs of Owning a Home: A Complete Checklist

Many first-time buyers focus on the mortgage payment and get surprised by everything else. Use this checklist when you build your budget.

• Property taxes can rise after you buy because the home is reassessed at its purchase price. Learn how in how property taxes work.
• Homeowners insurance varies by region and has been rising in many areas. See the homeowners insurance guide.
• Maintenance and repairs: plan on about 1% of the home's value per year. The home maintenance budget guide explains how to plan for big-ticket items.
• Utilities are often higher in a larger home than in an apartment.
• HOA or condo fees can be several hundred dollars a month and can rise.
• Moving costs and furnishings add up in the first year.
• Closing costs commonly run 2% to 5% of the price. See closing costs explained.

14. Three Real-Life Scenarios

Scenario 1: The dual-income couple. Two partners earn a combined $140,000 and carry $900 a month in car and student loan payments. The 36% rule caps their housing near $3,500 a month, but they also plan to start a family and want childcare money in the budget. They decide to shop at a payment around $2,900, which is below the ceiling, and they keep $30,000 in savings after closing.

Scenario 2: The single buyer with student loans. A buyer earning $72,000 has $600 a month in student loan payments. The 36% rule leaves about $1,560 for housing, which is lower than the 28% figure of $1,680. Because their debt is what limits them, paying down a car loan before applying could raise their buying power by tens of thousands of dollars.

Scenario 3: The buyer waiting for lower rates. A household earning $90,000 with $50,000 saved worries about a 6.5% rate. Instead of waiting, they set a budget they can afford now, keep extra cash for a rate buydown or a later refinance, and do not stretch on price. If rates fall, they can refinance; if they stretched on price, they would not have that flexibility. See how refinancing works.

15. Myths About Home Affordability

• "Rent is throwing money away." Owning has its own sunk costs, including interest, taxes, insurance and maintenance. Compare honestly in our rent vs buy guide.
• "I need 20% down." Many buyers put down far less, though it raises the monthly cost through mortgage insurance and interest.
• "If the lender approves me, I can afford it." Approval is based on ratios, not on your lifestyle, childcare costs, or savings goals.
• "Prices always go up." Local markets can fall or stagnate for years, so buy where you plan to stay long enough to recover transaction costs.
• "My credit score does not matter until I apply." Score improvements made months earlier can lower your rate and increase buying power. See what a good credit score is.

16. When to Talk to a Professional

Consider speaking with a housing counselor approved by HUD, a mortgage loan officer, or a fee-only financial planner if you are self-employed with irregular income, using down payment assistance, buying with a co-borrower who has poor credit, or unsure whether to prioritize retirement contributions over a larger down payment. A professional can review your specific numbers, which no general guide or calculator can do.

Frequently Asked Questions

How much house can I afford on a $75,000 salary?

Using the 28% guideline, gross monthly income is $6,250 so housing should be around $1,750 per month including taxes and insurance. The price that fits depends on your down payment, rate and other debts.

Should I buy the most expensive home I qualify for?

Usually not. Qualification limits are based on ratios, not your lifestyle, savings goals or job stability. Leave a cushion.

Does my credit score affect what I can afford?

Yes. A higher score generally earns a lower rate, which lowers your payment and increases the price you can afford for the same monthly budget.

How much should I have saved before buying?

Aim for the down payment, closing costs (roughly 2% to 5% of the price) and an emergency reserve of three to six months of expenses.

Does a higher income always mean I can afford more?

No. Existing debts and your savings rate matter as much as income. Two buyers with the same salary can afford very different homes.

How much income do I need for a $400,000 house?

It depends on your down payment, rate and debts, but at a 6.5% rate with 20% down, many households need roughly $110,000 to $130,000 of gross income to keep the payment near the 28% guideline. Use the affordability calculator for your own numbers.

Should I use gross or net income to decide?

Lenders qualify you on gross income, but you should test the payment against your take-home pay to make sure it leaves room for savings and life.

Does a higher credit score raise how much house I can afford?

Yes, indirectly. A higher score usually earns a lower rate, and a lower rate reduces the monthly payment on the same loan, increasing the price you can afford.

Is it better to buy a cheaper house and put more down?

Often yes if it keeps your payment and stress lower, but do not drain your emergency fund to increase the down payment.

This article is for general education only and is not tax, legal or investment advice. Figures and rules change; confirm details with the IRS or a qualified professional before making decisions.