How Much House Can You Actually Afford?
A bank’s pre-approval letter tells you the maximum you can borrow. It doesn’t tell you what leaves room in your budget for savings, repairs, and everything else life throws at you. Here’s how to find that number yourself.
Pre-Approval vs. Affordability
A mortgage pre-approval answers one question: the maximum a lender will let you borrow, based on your income, debts, and credit. It says nothing about whether that payment leaves room for savings, repairs, or the rest of your life. Those are two different questions, and confusing them is how people end up “house poor” — owning a home that technically qualifies but leaves little breathing room in the monthly budget.
The fix is to run your own affordability number before you start shopping, using the same ratios lenders use as a starting point, then adjusting for your actual budget and goals.
The 28/36 Rule Explained
Most lenders and financial planners lean on a simple guideline known as the 28/36 rule. It has two parts, based on your gross monthly income, meaning income before taxes.
Front-end ratio (28%): your total housing cost, principal, interest, property taxes, and insurance, shouldn’t exceed 28% of gross monthly income. Back-end ratio (36%): that same housing cost plus every other debt payment, car loans, student loans, credit cards, shouldn’t exceed 36% of gross monthly income.
On a $90,000 salary, or $7,500 a month gross, that works out to roughly $2,100 a month for housing and $2,700 a month for total debt. It’s a guideline, not a law: some loan programs allow a higher back-end ratio for borrowers with strong credit or a large down payment, but going well beyond 36% is where affordability tends to get uncomfortable in practice.
A 5-Step Affordability Framework
Work through these in order to land on a home price that fits your actual life, not just your lender’s formula.
Two Worked Examples
Same framework, two different incomes, two different comfortable price ranges.
$90,000 salary, one car loan, no other debt
Gross monthly income of $7,500, with a $400 monthly car payment. What housing budget fits the 28/36 rule?
Lender’s ceiling
- 28% housing ceiling: $2,100/mo
- 36% total-debt ceiling: $2,700/mo
- Room left for housing under 36%: $2,300/mo ($2,700 − $400 car payment)
- Binding limit: the 28% figure, $2,100/mo
At a 6.65% 30-year rate
- ~$2,100/mo in principal & interest supports a loan of roughly $330,000
- Add a 10% down payment and the price range lands near $365,000
- Taxes and insurance still need to fit inside that $2,100 figure, which lowers the pure loan-payment room somewhat
$140,000 household income, no other debt, 20% down
Gross monthly income of $11,667, no existing debt, and $70,000 saved for a down payment. What changes?
Lender’s ceiling
- 28% housing ceiling: ~$3,267/mo
- 36% total-debt ceiling: ~$4,200/mo
- With no other debt, the full 28% figure is available for housing
At a 6.65% 30-year rate
- ~$3,267/mo in principal & interest supports a loan of roughly $510,000
- Adding the $70,000 down payment pushes the price range toward $580,000
- A 20% down payment on a conventional loan also avoids private mortgage insurance, freeing up room in the monthly budget
Mistakes to Avoid
Treating pre-approval as a spending target
A pre-approval shows the ceiling a lender will allow, not a comfortable number. Borrowing right up to that limit leaves little room for anything to change.
Forgetting property taxes and insurance vary a lot by location
The same loan amount can carry a very different total housing cost depending on local tax rates and insurance premiums, especially in areas with higher wildfire, flood, or storm risk.
Leaving no budget for maintenance and repairs
Unlike renting, there’s no landlord to call when the water heater fails. Setting aside roughly 1-2% of the home’s value each year for upkeep avoids surprise financial strain.
Draining savings entirely for the down payment
A larger down payment lowers the monthly payment, but going to zero in savings removes the cushion needed for moving costs, furnishing a home, and unexpected expenses.
Assuming today’s rate locks in your final payment
Property taxes and insurance premiums both tend to rise over time, which means the total housing payment often grows even on a fixed-rate mortgage. Budgeting with a bit of room absorbs that drift.
Frequently Asked Questions
How much house can I afford based on my salary?+
Is the 28/36 rule based on gross or net income?+
Why is my pre-approval amount higher than what feels affordable?+
What costs besides the mortgage payment should I budget for?+
How does the down payment affect what I can afford?+
Key Takeaways
- A pre-approval shows the most you can borrow, not what leaves a comfortable budget — treat those as two different numbers.
- The 28/36 rule caps housing costs at 28% of gross monthly income and total debt at 36%.
- Property taxes, insurance, and, when applicable, PMI and HOA dues count toward that 28% housing figure.
- Maintenance, typically 1-2% of home value a year, and moving costs sit outside that figure and need separate budgeting.
- A larger down payment lowers the monthly payment and can raise the home price that fits your budget.
Sources & References
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