Most lenders will approve you for a home where your total housing costs stay at or below 28% of your gross monthly income. On a household income of $100,000, that translates to roughly $2,333 per month for your mortgage payment, property taxes, insurance, and any HOA fees. But the number a lender approves and the number you can comfortably afford aren’t always the same. Here’s how to figure out both.
The 28/36 Rule
The most widely used guideline in mortgage lending is the 28/36 rule. The first number means your housing costs should consume no more than 28% of your gross monthly income (your pay before taxes and deductions). Housing costs here include your mortgage principal and interest, property taxes, homeowners insurance, and HOA dues if applicable.
The second number, 36%, caps your total debt payments at 36% of gross monthly income. That includes your housing costs plus car loans, student loans, minimum credit card payments, and any other recurring debt. So if you earn $7,000 a month gross and already pay $500 toward a car loan and student debt, a lender would typically cap your housing payment around $1,460 ($7,000 × 0.36 = $2,520, minus $500 in existing debt = $2,020, but also limited to $1,960 by the 28% front-end cap).
Some lenders allow higher ratios for borrowers with strong credit scores or large cash reserves. FHA loans, for example, sometimes approve borrowers with total debt ratios above 40%. But stretching past the 28/36 threshold means less room in your budget for savings, emergencies, and everything else.
How to Estimate Your Maximum Home Price
Start with your gross monthly income and multiply by 0.28. That gives you the maximum monthly housing payment a lender will typically approve. From there, you need to subtract the non-mortgage pieces of your housing cost, since property taxes and insurance eat into that budget before a single dollar goes toward your loan.
Property tax rates vary widely, but a reasonable starting estimate is 1% to 2% of your home’s value per year. Homeowners insurance typically runs $1,500 to $3,000 annually for a standard policy, depending on where you live and the home’s value. Divide those annual figures by 12 to find the monthly cost, then subtract them from your 28% housing budget. What remains is the monthly mortgage payment you can actually afford.
With a 30-year fixed rate around 6.34% (the national average as of late April 2026), a monthly principal-and-interest payment of $1,500 supports a loan of roughly $242,000. Add your down payment to that loan amount, and you get your approximate purchase price. Someone putting $50,000 down could shop for homes around $292,000 in this scenario.
Your Credit Score Changes the Math
The interest rate you qualify for depends heavily on your credit score, and even small rate differences shift your buying power significantly. Based on data from Experian and Curinos, the gap between borrowers at opposite ends of the credit spectrum is meaningful. On a $350,000 loan, a borrower with a score of 620 would pay roughly $2,469 per month at a 7.59% rate. A borrower above 780 would pay about $2,284 at 6.81%. That $185 monthly difference adds up to over $66,000 in extra interest over 30 years.
Here’s a simplified view of how scores translate to rates on a 30-year fixed mortgage:
- 740 and above: The best rates, typically under 7%
- 700 to 739: Slightly higher, in the low 7% range
- 660 to 699: Rates climb into the mid-7% range
- 620 to 659: Rates approach or exceed 7.5%
Conventional (conforming) loans require a minimum score of 620. FHA loans go as low as 580 with a 3.5% down payment, or 500 if you put at least 10% down. If your score is below 700, improving it before you apply could save you tens of thousands over the life of the loan and increase the home price you can reasonably target.
Down Payment and Closing Costs
Your down payment directly affects how much house you can afford in two ways: it reduces the loan amount (lowering your monthly payment), and putting down at least 20% lets you avoid private mortgage insurance, which typically costs 0.5% to 1% of the loan amount per year.
You’ll also need cash for closing costs, which run 2% to 5% of the loan amount. On a $300,000 mortgage, that means $6,000 to $15,000 in fees covering the appraisal, title search, lender origination charges, and prepaid taxes and insurance. Smaller loans tend to have higher closing costs as a percentage because some fees are flat regardless of loan size.
Add your down payment and closing costs together to find the total cash you need at the table. For a $350,000 home with 10% down and 3% closing costs, you’d need $35,000 for the down payment plus roughly $9,450 in closing costs, totaling about $44,450 before you move in.
Costs That Don’t Show Up in the Mortgage
Your mortgage payment is only part of what you’ll spend on housing each month. Property taxes, insurance, and HOA fees are baked into the 28% calculation, but maintenance and repairs are not. A common rule of thumb is to budget 1% of your home’s value per year for upkeep. On a $350,000 home, that’s roughly $290 a month set aside for things like a new water heater, roof repairs, or HVAC servicing.
Utilities also tend to increase when you move from renting to owning, especially if you’re moving into a larger space. Budget for water, sewer, trash, electricity, gas, and lawn care if those weren’t part of your rent. These ongoing costs don’t affect your loan approval, but they absolutely affect whether you can comfortably afford the home you buy.
A Quick Affordability Worksheet
You can estimate your comfortable price range in a few steps:
- Step 1: Find your gross monthly household income (annual salary divided by 12)
- Step 2: Multiply by 0.28 to get your maximum monthly housing cost
- Step 3: Subtract estimated monthly property taxes (home price × 0.015 ÷ 12 is a reasonable middle estimate) and insurance (roughly $150 to $250 per month)
- Step 4: The remainder is your affordable monthly mortgage payment
- Step 5: Use an online mortgage calculator with current rates to convert that payment into a loan amount, then add your down payment
As a sanity check, apply the 36% back-end test. Add your new housing payment to all your existing monthly debt payments. If the total exceeds 36% of gross income, either the home price needs to come down or you need to pay off some existing debt first.
What You Can Afford vs. What You Should Spend
Lender approval amounts represent a ceiling, not a target. A bank qualifying you for a $400,000 mortgage doesn’t mean $400,000 is the right number for your life. The 28% rule uses gross income, but your actual take-home pay after taxes, retirement contributions, and health insurance is significantly less.
If you’re saving aggressively for retirement, paying for childcare, or carrying other large recurring expenses that don’t count as “debt” in the lender’s formula, your real comfort zone may be closer to 20% or 25% of gross income. Run the numbers against your actual monthly budget, not just the lender’s formula, and leave enough margin that an unexpected repair bill or a temporary income dip doesn’t put you in a bind.