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

"How much house can I afford" has two different answers, and confusing them is one of the more expensive mistakes a first-time buyer can make.

The first answer is how much a lender will approve you for. That's a arithmetic question with a fairly mechanical answer, and this guide walks through exactly how it's calculated.

The second answer is how much you can comfortably pay every month for the next thirty years, through a job change, a car repair, and a property tax increase. That number is almost always smaller, and no lender will calculate it for you.

This guide covers both — the actual formula lenders use, the inputs that move it most, and the specific ways the number changes depending on where you're buying. Every figure below was computed with the same engine behind the calculators on this site.

A note before you start: this is general education, not personalized financial advice. All examples use 6.65% for a 30-year loan — the Freddie Mac Primary Mortgage Market Survey average for the week of August 20, 2026 — and statewide average property tax and insurance figures from our own sourced dataset. Your county, your property, your insurer, and your lender will all differ. For a real number, get pre-approved.

1. What lenders actually measure: debt-to-income

Lenders don't primarily care about your savings balance, your net worth, or even (directly) your credit score when sizing your loan. They care about debt-to-income ratio (DTI) — your monthly debt obligations as a percentage of your gross, pre-tax monthly income.

There are two versions of it, and both matter:

• Front-end DTI — your housing payment alone, divided by gross monthly income.
• Back-end DTI — your housing payment plus every other monthly debt payment (car loans, student loans, credit card minimums, personal loans, child support), divided by gross monthly income.

The classic benchmark is the 28/36 rule: housing no more than 28% of gross income, total debt no more than 36%.

Two things about that rule are worth knowing immediately. First, it's a guideline, not a law — plenty of real loans are underwritten well above it, and section 4 shows what that does to the numbers. Second, "housing payment" means the whole payment — principal, interest, property tax, homeowners insurance, PMI if applicable, and HOA dues. Not the principal-and-interest figure from a rate quote. If you calculate your ratio against P&I only, you'll overestimate your budget by hundreds of dollars a month.

Working the ceiling backwards

Here's the calculation in full, for a buyer earning $95,000 a year with $400 a month in other debt payments:

• Gross monthly income: $95,000 ÷ 12 = $7,916.67
• Back-end ceiling at 36%: $7,916.67 × 0.36 = $2,850.00
• Minus existing debts: $2,850.00 − $400 = $2,450.00

So $2,450 a month is the entire housing budget — and every dollar of property tax and insurance comes out of that same $2,450, leaving less for principal and interest.

That last point is where geography enters the picture, and it matters more than most buyers expect.

2. Why the same income buys different amounts of house

Run that identical buyer — $95,000 income, $400 of monthly debt, $60,000 down, 6.65% over 30 years — through six different states, changing nothing but each state's average property tax rate and homeowners insurance premium:

Same person. Same income. Same down payment. Same rate. Roughly $85,000 of difference in buying power, driven entirely by what the state's tax collector and insurance market take out of the $2,450 before the lender can apply any of it to a loan.

This is the single strongest argument against generic national affordability advice. A "you can afford about 3–4x your income" heuristic is off by a meaningful margin in both directions depending on the state — it overstates budgets in Illinois and Texas and understates them in Hawaii and California.

It also explains something that confuses buyers moving between states: a raise that looks like it should expand your budget can be entirely absorbed by a move to a higher-tax state.

3. The 20% cliff nobody warns you about

The Texas row above is doing something worth examining closely. Its max price landed on exactly $300,000 — a suspiciously round number.

It isn't a rounding artifact or a cap in our calculator. It's a real discontinuity, and it comes from PMI.

With a fixed $60,000 down payment, $300,000 is precisely the price at which your down payment equals 20% of the purchase price. Buy anything more expensive and your down payment falls below 20%, which triggers private mortgage insurance on a conventional loan. Here's what that does, in Texas, against the $2,450 budget:

Going from a $300,000 house to a $300,500 house — $500 more — raises the monthly payment by $154.10, from $2,300.30 to $2,454.40. That's a 6.7% jump in payment for a 0.17% increase in price, and it's exactly enough to push this buyer over their $2,450 ceiling.

The practical takeaways:

• If you're near 20% down, know exactly where your cliff is. A slightly cheaper house can cost dramatically less per month than one barely above the line.
• The cliff moves with your down payment. With $80,000 down instead of $60,000, the same Texas buyer's max rises to $336,658 — and their down payment at that price is 23.8%, comfortably clear of PMI.
• The cliff is not a reason to avoid buying below 20% down. It's a reason to understand the number. PMI cancels (see our PMI removal guide); a stretched budget with no cash reserve does not.

For reference, with $80,000 down the same buyer reaches $372,273 in Pennsylvania and $404,225 in Hawaii — the extra $20,000 of down payment buying roughly $20,000–$40,000 of additional price depending on the state's carrying costs.

4. What happens when you stretch the ratio

The 36% back-end ceiling is conservative. Many conventional loans are underwritten to 43% (the "Qualified Mortgage" threshold), and some programs and lenders go to 50% for borrowers with strong compensating factors — high credit scores, large reserves, or stable long-tenure income.

Here's the same Pennsylvania buyer at four different ceilings:

The range from most conservative to most aggressive is nearly $200,000 of purchase price — and $1,741.67 a month of payment.

It's worth sitting with what the 50% row actually means: half of every pre-tax dollar you earn is committed to debt before you've paid income tax, bought groceries, or saved anything. Loans like that get approved. They also leave no room for a bad year.

The honest way to use this table is not to find the biggest number you might qualify for. It's to notice how much the "right" answer depends on an assumption nobody will make for you.

5. Your other debts cost more buying power than you think

Existing monthly obligations come straight off the top of your housing budget, dollar for dollar — and because that reduction is then multiplied through 30 years of financing, its effect on purchase price is large.

The same Pennsylvania buyer, varying only monthly debt payments:

$400 a month of debt costs about $49,200 of buying power. A second $400 costs another $32,500 (the drop is smaller because it runs into the same 20%-down PMI cliff from section 3).

Put differently: a $400 car payment is, in mortgage terms, roughly a $49,000 house. That's not an argument that car loans are bad — it's an argument that if you're within a year of buying, paying off a small installment loan can expand your budget more than saving the same amount of cash. A $6,000 balance retired at $400 a month frees the full $400 from your DTI calculation; $6,000 added to your down payment buys about $6,000 of house.

Which is better depends on your numbers, but most buyers assume the opposite of what's usually true.

6. What the ratios miss

DTI is a blunt instrument. It's genuinely useful for what it does, and it ignores several things that matter enormously to whether a payment is actually sustainable:

• Taxes. DTI uses gross income. A borrower in a high-income-tax state keeps meaningfully less of that gross than one in a no-income-tax state, and the ratio treats them identically.
• Household size and childcare. Two buyers with identical incomes and identical debts have wildly different real budgets if one is paying for daycare.
• Retirement contributions. A 401(k) contribution isn't debt, so it doesn't appear in DTI at all — but stopping it to afford a house is a real cost.
• Maintenance. A common planning figure is 1% of home value per year — about $333 a month on a $400,000 home. It's invisible to your lender and inevitable for you.
• Income stability. A ratio can't distinguish a tenured salary from commission income that varies 40% year to year.
• Escrow growth. Your tax and insurance escrow is recalculated annually and generally rises over time. The payment you qualify for today is usually not the payment you'll have in year five — see our payment guide for how that works.

A reasonable way to handle all of this: calculate the lender's maximum, then set your own ceiling below it and treat the difference as the margin that makes the house a home rather than a monthly obligation you resent.

7. Improving the number honestly

If the figure comes back lower than you want, there are only a handful of levers, and they differ a lot in effectiveness:

Raise your down payment. Directly increases the price you can reach and, past 20%, removes PMI entirely. In our examples, $20,000 of extra down payment bought $20,000–$40,000 of extra price depending on state.

Reduce monthly debt payments. As section 5 showed, often the highest-leverage move available in the short term, and frequently more effective per dollar than saving.

Improve your credit score. This doesn't change the DTI math, but it changes the rate you're offered — and rate moves the payment substantially. On a $320,000 loan, half a point of rate is worth roughly $105 a month, which is roughly $15,000–$20,000 of purchase price.

Extend the term. A 30-year loan qualifies you for more house than a 15-year, because the monthly payment is lower. It also costs dramatically more interest over the life of the loan.

Buy in a lower-carrying-cost county. Not always practical, but section 2 shows the effect is real and large — and within a state, county tax rates vary meaningfully too.

Shop the insurance before you commit, especially in high-premium states. In Texas, insurance alone consumes $409.58 of the monthly budget at the statewide average. A materially better quote on a specific property directly expands what you can afford.

What generally doesn't work: assuming a raise you haven't received yet, counting income you can't document for two years, or relying on a family gift you haven't discussed (gift funds are legitimate, but lenders require a documented gift letter and sourcing).

8. Five mistakes worth avoiding

1. Budgeting against principal and interest only. In Texas, at the numbers above, tax and insurance are roughly a third of the payment. Leaving them out doesn't make you able to afford more house; it makes you wrong about what you can afford.
2. Treating the pre-approval amount as a target. It's a ceiling calculated from your risk profile, not a recommendation about your life.
3. Forgetting closing costs are separate cash. They typically run 2%–5% of the purchase price and are due at closing, on top of the down payment. Spending your entire savings on the down payment leaves nothing for them.
4. Ignoring the PMI cliff. As section 3 showed, $500 of extra price can cost $154 a month if it crosses the 20% line.
5. Closing the file after pre-approval. Opening a new credit card or financing a car between pre-approval and closing changes your DTI, and lenders re-check. It's one of the more common causes of a loan falling apart in the final week.

9. Setting your own number

The lender's ceiling is one input. Here's a way to produce a figure you'll actually be comfortable with.

Start from your take-home pay, not gross. DTI uses gross income, which overstates what you have. Work from what lands in your account.

Subtract what you're already committed to before housing: retirement contributions you don't want to stop, childcare, insurance premiums, debt payments, and a realistic figure for saving.

Subtract a maintenance reserve. Roughly 1% of the home's value per year — about $333 a month on a $400,000 home. It isn't billed, and it's unavoidable.

Then add headroom for escrow growth. Property tax and insurance rise, and in high-cost states that increase is substantial. A 10% rise on a Texas escrow is $87.63 a month; in Hawaii it's $16.50. Leave room proportional to where you're buying.

Stress-test it. Could you make the payment if one income dropped for six months? If a car needed replacing? If your escrow rose $150? A payment that only works in a good year isn't affordable; it's a bet.

Then compare that number to the lender's. If yours is much lower, that gap is not a failure — it's the margin that makes owning pleasant rather than precarious.

One practical technique worth trying: live on the new payment before committing. For three months, transfer the difference between your current rent and the proposed housing payment into savings the day you're paid. If it's comfortable, you've validated the number and built your reserve. If it isn't, you've learned that for the price of three transfers rather than thirty years.

Frequently asked questions

What is the 28/36 rule? A common underwriting guideline: your housing payment should stay under 28% of gross monthly income (front-end DTI), and all your debt payments combined under 36% (back-end DTI). It's a benchmark, not a legal limit — many loans are approved above it.

Does "housing payment" include taxes and insurance? Yes. Front-end DTI uses the full payment — principal, interest, property tax, homeowners insurance, PMI if applicable, and HOA dues. Using principal and interest alone will make your ratio look better than a lender will calculate it.

How much income do I need for a $400,000 house? It depends heavily on your state, your debts, and your down payment. In our examples, a $95,000 income with $400 of debt and $60,000 down reaches roughly $385,000 in Hawaii but $300,000 in Texas. Run your own numbers with the affordability calculator rather than relying on an income multiple.

Will a lender approve me for more than 36%? Often, yes — 43% is a standard threshold, and 50% happens with strong compensating factors. Whether you should borrow at that level is a separate question the ratio doesn't answer.

Does my credit score change how much I can borrow? Not directly through DTI, but it changes your interest rate, which changes your monthly payment, which changes the price your budget supports. A better score effectively raises your ceiling.

Should I pay off debt or save a larger down payment? Frequently paying off debt wins, at least for small installment balances. $400 a month of debt cost about $49,200 of buying power in our example — far more than $6,000 of extra down payment would have added.

Is being "house poor" just about the payment? No. It's about the payment plus the costs the ratio ignores — maintenance, rising escrow, and the savings you stop doing to make it work. That's why setting your own ceiling below the lender's is worth doing deliberately.

What to do next

The number that matters is yours, not the national average. Our affordability calculator takes your income, monthly debts, and down payment and returns a maximum home price plus a plain-language qualification signal — using your state's real property tax rate and insurance average, so the tax-and-insurance drag in section 2 is built in rather than assumed away.

From there:

• Payment calculator — go the other direction: start from a home price and see the full all-in monthly payment.
• Your monthly mortgage payment, explained — what each part of the payment actually is, and which parts vary by state.
• What is PMI and how do you remove it? — the cliff from section 3, and exactly when it goes away.
• First-time buyer programs — check whether down payment assistance applies to you before assuming it doesn't.

See our methodology page for how every figure on this site is sourced.

This article is general education about how mortgage affordability is calculated, not financial, legal, or tax advice. Dollar figures were computed with CalculatorByState's own calculation engine using statewide average tax and insurance data and the Freddie Mac PMMS 30-year rate for the week of August 20, 2026. They are illustrations, not pre-approvals. Your actual borrowing capacity depends on your full credit and income profile, your county, your property, and your lender's underwriting standards.