Calculate the maximum home price you can afford using the 28/36 debt-to-income rule.
Determining how much house you can afford is one of the most critical steps in the home buying process. This calculator uses the widely accepted 28/36 debt-to-income (DTI) rule, which is the standard that most lenders use to evaluate mortgage applications. Understanding your affordability range before you start house hunting saves time, prevents disappointment, and puts you in a stronger negotiating position.
The 28/36 rule consists of two components. The front-end ratio (28%) limits your total housing costs -- including mortgage principal, interest, property taxes, and homeowners insurance -- to no more than 28 percent of your gross monthly income. The back-end ratio (36%) limits your total monthly debt obligations, including housing costs plus car payments, student loans, credit card minimums, and any other recurring debts, to no more than 36 percent of gross monthly income.
Lenders use your gross income (before taxes and deductions) rather than your take-home pay when calculating affordability. This means if you earn $85,000 per year, your gross monthly income is approximately $7,083. Using the 28% rule, your maximum monthly housing expense would be about $1,983. Keep in mind that your actual take-home pay is lower, so you should also evaluate whether the calculated payment fits comfortably within your budget after accounting for taxes, retirement contributions, and other payroll deductions.
Your existing monthly debt payments directly reduce the amount you can borrow for a home. The back-end DTI ratio caps your total debt at 36% of gross income. If you earn $7,083 monthly, your total allowable debt is $2,550. If you already pay $400 per month toward car loans and credit cards, only $2,150 remains for housing costs. Paying down existing debts before applying for a mortgage can significantly increase your home buying budget. Even eliminating a $300 monthly car payment could add $40,000 or more to your maximum affordable home price.
The size of your down payment affects affordability in several ways. A larger down payment reduces your loan amount, which lowers your monthly payment and the total interest paid over the life of the loan. Putting down at least 20% also eliminates the need for private mortgage insurance (PMI), which typically costs 0.5% to 1% of the loan amount annually. On a $300,000 mortgage, PMI could add $125 to $250 per month to your housing costs. For first-time buyers, FHA loans require as little as 3.5% down, while VA loans for eligible veterans and service members require no down payment at all.
Interest rates have an outsized impact on what you can afford. Even small changes in rates create large differences in purchasing power. On a 30-year loan, the difference between a 6% and 7% interest rate on a $300,000 mortgage is about $200 per month, or roughly $72,000 over the life of the loan. When rates are low, buyers can afford more expensive homes with the same monthly payment. When rates rise, the reverse is true. This is why locking in a favorable rate can be just as important as negotiating the purchase price.
While the 28/36 rule is a solid starting point, your personal financial situation may call for more conservative limits. Financial advisors often suggest that your total housing costs should not exceed 25% of your take-home pay. You should also consider factors that the DTI ratio does not capture: childcare expenses, healthcare costs, savings goals, lifestyle preferences, and emergency fund adequacy. A home that meets the 28/36 criteria but leaves you with no room for savings or discretionary spending is not truly affordable.
Property taxes vary significantly by location and can range from under 0.5% in some states to over 2% in others. Similarly, homeowners insurance, HOA fees, and maintenance costs (typically 1% to 2% of the home value annually) add to the true cost of homeownership. This calculator estimates property taxes, but you should research the specific tax rates and insurance costs in your target area for a more accurate picture.
To determine how much house you can afford, follow this systematic approach that mirrors what lenders evaluate during the pre-approval process:
Keep in mind that pre-approval amounts from lenders may differ from this calculation. Some lenders allow higher DTI ratios for borrowers with excellent credit, large cash reserves, or compensating factors. Conversely, some loan programs impose stricter limits. The calculation above represents a conservative, widely-accepted standard that helps ensure long-term financial stability.
On a $100,000 annual salary with no other debts, using the 28% front-end DTI rule, you can afford roughly $2,333 per month in housing costs. At a 7% interest rate with a 20% down payment, this translates to approximately $350,000 to $400,000 in home price depending on property taxes and insurance.
The 28/36 rule states that you should spend no more than 28% of your gross monthly income on housing expenses (mortgage, taxes, insurance) and no more than 36% on total debt payments including housing, car loans, student loans, and credit cards.
The traditional recommendation is 20% of the home price, which avoids private mortgage insurance (PMI). However, many loan programs allow as little as 3% down for conventional loans or 0% for VA loans. FHA loans require a minimum of 3.5% down.
Yes, the 28% front-end ratio includes all housing costs: mortgage principal and interest, property taxes, homeowners insurance, and any HOA fees. This calculator estimates taxes and insurance to give you a realistic affordability figure.
Interest rates significantly impact affordability. A 1% increase in rate on a 30-year mortgage reduces buying power by roughly 10%. For example, at 6% you might afford a $400,000 home, but at 7% that drops to about $360,000 with the same income.