🏠 How Much House Can You Really Afford?

The 28/36 Rule

Lenders traditionally use the "28/36 rule" to assess affordability. Your housing costs — principal, interest, property taxes, and insurance (PITI) — should not exceed 28% of your gross monthly income. Total debt payments (housing plus car loans, student loans, credit cards) should stay under 36%.

For example, if you earn $6,000/month, your maximum PITI is $1,680, and your total debt ceiling is $2,160. These aren't rigid laws, but crossing them significantly increases your loan rejection risk.

Down Payment: The Bigger, The Better

A 20% down payment is the traditional benchmark — it eliminates Private Mortgage Insurance (PMI), which can add 0.5%–1.5% of the loan amount per year. On a $400,000 home, that's $2,000–$6,000 annually in PMI alone.

But you don't have to wait for 20%. FHA loans require as little as 3.5% down, and some conventional loans accept 3%. Just account for the additional PMI cost in your monthly budget.

Hidden Costs That Catch Buyers Off Guard

The sticker price is just the start. Budget for closing costs (typically 2%–5% of the loan), moving expenses, immediate repairs, and ongoing maintenance (plan for 1%–2% of the home's value annually). A $400,000 home could easily require $20,000–$30,000 in upfront closing and moving costs beyond the down payment.

Interest Rates Change Everything

A 1% change in interest rate affects your payment more than you might expect. On a $300,000 30-year mortgage: • At 5%: $1,610/month • At 6%: $1,799/month • At 7%: $1,996/month

That's a difference of nearly $400/month — or $144,000 over the life of the loan — between 5% and 7%. Getting pre-approved before shopping helps you understand exactly what rate you qualify for.

Beyond the Monthly Payment

Ownership costs extend beyond your mortgage. Property taxes, homeowner's insurance, HOA fees (if applicable), utilities, and maintenance all add up. A common mistake is stretching to the maximum mortgage payment and having no financial cushion left for these ongoing costs. A true affordability calculation factors in all of these, not just principal and interest.