Most people walk into a realtor office without knowing their real budget — they just wait to see how much the bank approves. Loan approval and true affordability are two very different things.
The 28/36 Rule: The Foundation
28% — max % of gross income for housing costs (mortgage + taxes + insurance) · 36% — max % of gross income for ALL debt combined
How Much House by Salary?
| Annual Salary | Max Monthly Payment | Affordable Home Price | Status |
|---|---|---|---|
| $50,000 | $1,167/mo | ~$165,000 | ⚠ Limited |
| $75,000 | $1,750/mo | ~$255,000 | ✓ Manageable |
| $100,000 | $2,333/mo | ~$350,000 | ✓ Comfortable |
| $120,000 | $2,800/mo | ~$425,000 | ✓ Strong |
| $150,000 | $3,500/mo | ~$535,000 | ✓ Flexible |
These numbers assume no other significant debt and a 20% down payment. If you have car payments or student loans, your real affordable price is lower.
What Housing Costs Actually Include
The 28% rule applies to your total housing payment — not just mortgage principal and interest. Include: property taxes (1-2%/year), homeowner insurance ($100-200/mo), PMI if under 20% down, and HOA fees if applicable.
How Existing Debt Changes Everything
Without other debts: Can afford ~$275,000 home · With $600/mo car payment: Can afford ~$265,000 home · With $600 car + $400 student loans: Can afford ~$200,000 home — Same salary. Very different home budgets.
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Try the Free Mortgage Calculator →The Assumptions Behind These Numbers
The prices in this guide assume a 20% down payment, a 30-year fixed mortgage at about 7%, property taxes of about 1.1% of the home price per year, and homeowners insurance of $150 per month. Your own numbers will differ, so use these as a starting point, not a quote.
Why Your Other Debts Cut the Price So Much
In the $80,000 example, the 28% rule allows about $1,867 per month for housing. But the 36% rule limits total debt to $2,400 per month. A $600 car payment leaves $1,800 for housing, and adding a $400 student loan leaves only $1,400. The tighter of the two rules decides how much house you can afford, and as debts grow, the 36% limit is the one that matters.
How Interest Rates Change the Price
| Mortgage Rate | Home Price on a $1,867 Budget |
|---|---|
| 6% | ~$300,000 |
| 7% | ~$275,000 |
| 8% | ~$250,000 |
The same monthly budget buys about $50,000 less house when the rate goes from 6% to 8%. That is why it helps to calculate your price at a rate higher than today's, so a small increase before you close does not break your budget.
Money You Need Before Closing
- Down payment: 20% avoids mortgage insurance, but many loans allow much less
- Closing costs: often around 2% to 5% of the loan, covering fees, title, and prepaid items
- Cash reserves: lenders and good sense both favor having several months of housing payments saved after closing
- Moving and first-month costs: furniture, repairs, and utility deposits add up quickly
What Happens If You Put Down Less Than 20%
With less than 20% down on a conventional loan, you usually pay private mortgage insurance (PMI) until you have built enough equity. Under federal rules, you can generally ask to cancel PMI once your balance reaches 80% of the home's original value, and it ends automatically at 78% if you are current on payments. PMI adds to your monthly cost, so include it when you test a price.
Know Your Real Budget Before You Shop
Use our free mortgage affordability calculator to check your debt-to-income ratio.
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