How Much House Can I Afford?

The 28/36 DTI Rule Explained

The 28/36 rule is the most widely used guideline for determining how much house you can afford. The front-end ratio (28%) states that your total monthly housing costs, including principal, interest, taxes, and insurance, should not exceed 28% of your gross monthly income. The back-end ratio (36%) limits your total monthly debt payments, including housing costs plus car loans, student loans, credit cards, and other obligations, to no more than 36% of gross income. For a household earning $85,000 annually ($7,083 per month), the 28% rule caps housing at $1,983 per month and total debts at $2,550. The Consumer Financial Protection Bureau (CFPB) recommends these guidelines as a starting point, though some loan programs allow higher ratios. FHA loans permit back-end DTIs up to 50% with compensating factors, while VA loans do not impose a strict front-end ratio. Understanding these thresholds helps you set realistic expectations before house hunting.

Income-Based Home Budgeting

A practical approach to home budgeting starts with your take-home pay rather than your gross income. While lenders use gross income for qualification, your actual budget operates on net income. Financial planners at the National Foundation for Credit Counseling (NFCC) recommend keeping total housing costs below 30% of your net monthly income for financial comfort. Beyond the mortgage payment itself, your housing budget should account for property taxes (averaging 1.1% of home value nationally), homeowners insurance ($1,200 to $2,500 annually depending on state), and maintenance costs (typically 1% to 2% of the home value per year). If your gross income is $85,000, your take-home pay after taxes and deductions is roughly $5,400 to $5,800 per month. Keeping total housing costs under $1,700 per month provides a comfortable buffer for savings, emergencies, and lifestyle expenses. This conservative approach often points to a lower home price than lender-approved maximums, but it provides genuine long-term financial stability.

Hidden Costs Beyond the Mortgage

Many first-time buyers focus exclusively on the monthly mortgage payment and overlook the substantial additional costs of homeownership. Property taxes vary dramatically by location, ranging from 0.28% in Hawaii to 2.49% in New Jersey according to the Tax Foundation. On a $350,000 home, that difference means paying $980 versus $8,715 per year. Homeowners insurance adds another $100 to $250 per month, with flood or earthquake coverage potentially doubling that figure in high-risk areas. PMI costs $50 to $200 monthly if your down payment is below 20%. HOA fees for condos and planned communities often range from $200 to $500 per month. Maintenance and repairs average 1% to 3% of the home value annually, covering everything from HVAC servicing to roof repairs. Utility costs for a home typically exceed apartment utilities by $100 to $200 per month. When calculating affordability, add 30% to 50% on top of your principal and interest payment to estimate true monthly housing costs.

Pre-Approval vs. Calculator Estimates

Online affordability calculators, including this one, provide valuable estimates based on standard underwriting guidelines, but a mortgage pre-approval from a lender is the definitive answer to how much house you can afford. Calculators use generalized DTI ratios and do not account for your complete financial profile. A lender's pre-approval process involves pulling your credit report, verifying income through pay stubs and tax returns, reviewing bank statements, and evaluating your employment history. Pre-approval letters typically specify a maximum loan amount and interest rate, and they are valid for 60 to 90 days. According to Freddie Mac, buyers with pre-approval letters are taken more seriously by sellers and can close faster than those without one. Use calculator estimates to set initial expectations and narrow your search, then obtain pre-approval to confirm your exact purchasing power. Keep in mind that the pre-approved amount represents the maximum, and buying below that ceiling gives you financial breathing room for unexpected expenses.

Regional Affordability Differences

Where you buy matters as much as what you earn when determining home affordability. The same $85,000 income that qualifies you for a spacious four-bedroom home in Indianapolis or Memphis might only cover a modest condo in San Francisco or Boston. According to the National Association of Realtors (NAR), the national median home price in early 2026 sits near $400,000, but markets like the Midwest and parts of the South offer median prices between $200,000 and $300,000. Property taxes further skew affordability, as states like Texas and New Jersey charge nearly three times the national average rate, effectively reducing your buying power by tens of thousands of dollars. Remote work has expanded geographic options for many buyers, making affordable markets accessible without sacrificing income. Cities like Raleigh, Nashville, Tampa, and Salt Lake City offer growing job markets with median home prices significantly below the most expensive coastal metros. Factor in state income taxes, commuting costs, and local cost of living when comparing affordability across regions.