Buying a home is the biggest financial decision most people will ever make. But how do you know how much house you can actually afford before you start touring open houses?
Lenders use specific formulas. Smart buyers add their own safety margins. This guide walks through everything that goes into a realistic home affordability calculation.
Try our Home Affordability Calculator to see your personalized numbers.
The 28/36 Rule: The Lender's Framework
Most mortgage lenders use the 28/36 rule to determine how much you can borrow. This guideline is recommended by the Consumer Financial Protection Bureau (CFPB) and most major lenders:
- Front-end ratio (28%): Your total monthly housing payment — principal, interest, taxes, insurance (PITI) — should not exceed 28% of your gross monthly income.
- Back-end ratio (36%): Your total monthly debt payments — housing + car loans, student loans, credit cards, alimony — should not exceed 36% of your gross monthly income.
Some lenders stretch to 43% or even 50% back-end for qualified borrowers. But sticking closer to 28/36 keeps your budget comfortable.
Real-World Example: $80,000 Annual Income
Let's say you earn $80,000/year ($6,667/month gross) and have no other monthly debt:
| Scenario | 6% Rate | 6.87% Rate | 7.5% Rate |
|---|---|---|---|
| 28% front-end max | $1,867 | $1,867 | $1,867 |
| Max home price (20% down) | $373,000 | $340,000 | $318,000 |
| Max home price (10% down) | $335,000 | $306,000 | $286,000 |
| Max home price (5% down) | $318,000 | $290,000 | $271,000 |
At the current 6.87% 30-year fixed rate (as of mid-2026), a buyer earning $80k with 20% down can afford roughly $340,000. With 5% down, that drops to about $290,000.
Beyond the Mortgage: The Hidden Costs of Homeownership
Your monthly housing payment isn't just the mortgage. Lenders know this — that's why the 28% front-end ratio includes PITI:
- P — Principal & Interest: The actual loan payment. This is what most people think of as "the mortgage."
- T — Property Taxes: Varies by location. Average is 0.5%–1.2% of home value annually. Texas and New Jersey are on the high end (1.5%–2.5%).
- I — Homeowners Insurance: Typically $800–$1,500/year depending on location and coverage.
- HOA: If applicable, $100–$500/month or more in condo buildings.
- PMI: If you put down less than 20%, private mortgage insurance adds 0.5%–1.5% of the loan amount per year.
Don't forget maintenance — the 1% rule says budget 1% of the home's value per year for repairs and upkeep. On a $350,000 home, that's $3,500/year or about $292/month.
Down Payment: How Much Do You Need?
The conventional wisdom says 20% down, but that's not a requirement:
| Down Payment | On $350,000 Home | PMI? | Monthly Payment (6.87%) |
|---|---|---|---|
| 5% | $17,500 | Yes (~$175/mo) | $2,530 |
| 10% | $35,000 | Yes (~$145/mo) | $2,348 |
| 20% | $70,000 | No | $2,058 |
| 30% | $105,000 | No | $1,801 |
Putting down 20% doesn't just eliminate PMI — it also lowers your monthly payment significantly. But if saving $70,000 would take years, 5% or 10% down with PMI can still make sense, especially in rising markets.
How Interest Rates Change Everything
Rates in 2026 are elevated compared to the 3% rates of 2020–2021. Freddie Mac's Primary Mortgage Market Survey tracks average weekly rates. Here's what different rate levels mean for your buying power:
- At 3%: $1,867/month buys you ~$443,000 home (20% down)
- At 5%: $1,867/month buys you ~$348,000 home
- At 6.87%: $1,867/month buys you ~$340,000 home
- At 8%: $1,867/month buys you ~$310,000 home
Every 1% rate increase reduces your buying power by roughly 10%. That's why rate shopping and timing matter — but nobody can predict rates, so buy when you're financially ready.
Total Cost of Homeownership: A Realistic Budget
For a $350,000 home with 10% down and a 6.87% 30-year fixed rate:
| Expense | Monthly | Annual |
|---|---|---|
| Principal & Interest | $2,069 | $24,828 |
| Property Taxes (1.1%) | $321 | $3,850 |
| Insurance | $100 | $1,200 |
| PMI | $145 | $1,740 |
| Maintenance (1%) | $292 | $3,500 |
| Total | $2,927 | $35,118 |
That's $2,927/month — or 44% of an $80k salary. That's well above the 28% front-end ratio. This is why many homeowners feel "house poor" if they stretch too far.
Tips for Increasing Your Buying Power
- Pay down debt: Lowering your back-end DTI ratio lets you qualify for a larger mortgage.
- Increase your down payment: Even 5% more reduces PMI and total interest.
- Save for a rate buy-down: Paying points upfront can lower your rate by 0.25%–0.5%.
- Consider a 15-year term: Higher monthly payment but lower rate and less total interest.
- Boost your income: Side gigs, overtime, or a second job directly increase what you can afford.
Calculate Your Home Affordability
Use our Home Affordability Calculator — enter your income, down payment, and local costs to see your personalized maximum home price. Also try our Mortgage Calculator to compare different loan scenarios.