The mortgage you can afford depends on your income, your existing debts, and how much you’re putting down. A widely used starting point is the 28/36 rule: spend no more than 28% of your gross monthly income on housing costs and no more than 36% on all debt combined. On a household income of $100,000, that translates to roughly $2,333 per month for your mortgage payment, including taxes and insurance. But that guideline is just the beginning. Lenders, loan programs, and your own financial comfort level all pull that number in different directions.
The 28/36 Rule Explained
The 28/36 rule uses your gross income, meaning your pay before taxes and deductions. The first number, 28%, caps your total housing costs. That includes principal, interest, property taxes, and homeowners insurance (often abbreviated PITI). If you pay HOA dues or carry private mortgage insurance, those count too. The second number, 36%, caps all of your monthly debt payments combined: housing plus car loans, student loans, minimum credit card payments, and any other recurring obligations.
Here’s what that looks like at different income levels:
- $60,000 gross income: $1,400/month max housing cost, $1,800/month max total debt
- $80,000 gross income: $1,867/month max housing cost, $2,400/month max total debt
- $100,000 gross income: $2,333/month max housing cost, $3,000/month max total debt
- $150,000 gross income: $3,500/month max housing cost, $4,500/month max total debt
If you’re already paying $500 a month toward a car loan and $300 toward student loans, that $800 cuts into your 36% ceiling. At $100,000 income, your total debt cap is $3,000, so only $2,200 remains for housing, which is below the 28% figure. Your existing debts effectively shrink the mortgage you can take on.
What Lenders Actually Approve
Lenders don’t necessarily stick to the 28/36 guideline. They focus primarily on your back-end debt-to-income ratio (DTI), which is your total monthly debt divided by your gross monthly income. For conventional loans run through automated underwriting systems, Fannie Mae allows a DTI as high as 50%. Manually underwritten conventional loans cap at 36%, or up to 45% if you have strong credit scores and cash reserves.
FHA and VA loans follow their own agency guidelines, but both commonly approve borrowers with DTIs in the mid-40s when other factors are strong. In practice, this means a lender might approve you for significantly more house than the 28/36 rule suggests. That doesn’t mean you should borrow the maximum. An approval letter tells you what a lender is willing to risk, not what fits comfortably in your budget.
How Interest Rates Change Your Buying Power
The interest rate on your mortgage has an enormous effect on how much home your monthly payment can buy. With 30-year fixed rates averaging around 6.34% as of late April, every percentage point shift reshapes affordability. On a $350,000 loan, the difference between a 6% rate and a 7% rate adds roughly $230 to your monthly payment, or about $83,000 in total interest over the life of the loan.
Your individual rate depends on your credit score, down payment size, loan type, and the lender you choose. Borrowers with credit scores above 740 typically qualify for the best rates, while scores below 680 can add a quarter to half a percentage point. Shopping multiple lenders and comparing loan estimates is one of the most effective ways to stretch your buying power without spending more.
Costs Beyond the Mortgage Payment
Your monthly housing cost isn’t just principal and interest. Property taxes vary significantly by location but commonly run between 0.5% and 2.5% of your home’s assessed value per year. On a $350,000 home, that’s anywhere from $146 to $729 per month. Homeowners insurance averages about $2,490 a year nationally for $400,000 in dwelling coverage, which works out to roughly $208 per month.
If your down payment is less than 20% on a conventional loan, you’ll also pay private mortgage insurance (PMI). PMI typically costs between 0.5% and 1.5% of the original loan amount per year. On a $300,000 loan, that’s $125 to $375 per month. PMI drops off once you reach 20% equity in the home, but it adds real cost in the early years. Add these expenses up before you start shopping. A home with a $1,800 principal-and-interest payment can easily reach $2,400 or more once you factor in taxes, insurance, and PMI.
How Your Down Payment Shapes Affordability
Conventional loans require as little as 3% down, and FHA loans go as low as 3.5%. A smaller down payment gets you into a home sooner, but it increases your loan amount, triggers PMI, and raises your monthly payment. Putting 20% down eliminates PMI entirely and gives you a lower monthly obligation on the same purchase price.
Consider a $350,000 home at a 6.34% rate on a 30-year fixed mortgage. With 3% down ($10,500), your loan is $339,500, and your principal-and-interest payment is about $2,113. With 20% down ($70,000), your loan is $280,000, and that payment drops to roughly $1,742, and you avoid PMI on top of that. The gap between those two scenarios can be $400 to $500 per month when you include PMI. That’s the difference between feeling comfortable and feeling stretched.
Saving a larger down payment also strengthens your offer in a competitive market. But depleting your savings entirely to hit 20% can leave you vulnerable. Most financial planners suggest keeping at least three to six months of expenses in reserve after closing.
Running Your Own Numbers
To estimate how much mortgage you can afford, start from your monthly budget rather than a lender’s approval letter. Follow these steps:
- Calculate 28% of gross monthly income. This is your housing cost ceiling under the conservative rule.
- Subtract estimated taxes, insurance, and PMI. What remains is available for principal and interest.
- Check your back-end ratio. Add your housing cost to all other monthly debt payments. If the total exceeds 36% of gross income, you’re stretching beyond the conservative guideline.
- Stress-test with your take-home pay. The 28% rule uses gross income, but your bills come out of net pay. If your housing cost would eat more than 35% to 40% of your after-tax income, your day-to-day budget may feel tight.
For a quick translation from monthly payment to loan amount: at a 6.34% rate on a 30-year term, every $1,000 of monthly principal and interest supports roughly $161,000 in loan balance. So if you have $1,800 available for principal and interest after accounting for taxes and insurance, you can borrow approximately $290,000.
When the Guidelines Don’t Fit
The 28/36 rule works well as a baseline, but it wasn’t designed for every financial situation. Someone with no car payment, no student loans, and a fully funded emergency fund can often handle a housing payment above 28% without financial strain. Someone with irregular freelance income, high childcare costs, or aggressive retirement savings goals might need to stay well below it.
Your comfort level also depends on where your income is headed. A household expecting steady raises over the next few years may reasonably stretch a bit today, knowing the payment will shrink as a percentage of income over time. A household at peak earning capacity might prioritize a smaller payment to free up cash for other goals. The right mortgage amount is one where you can make the payment every month, keep saving for retirement, handle an unexpected expense, and still enjoy your life.