How Much House Can I Afford? The Rules That Decide It
The honest answer to how much house you can afford is not a price. It is a monthly payment your income can carry alongside everything else you owe.
Key takeaways
- Start with a payment, not a price: housing at 28% of gross income, all debts at 36%.
- Budget on PITI, not principal and interest alone: taxes, insurance, and PMI add hundreds.
- The 3-times-income rule is a rough cross-check only.
- A smaller down payment buys sooner but costs more monthly.
- Keep closing costs and reserves separate, and treat the largest approved loan as a ceiling.
The 28/36 rule, in plain English
Most buyers shop the wrong way round: they pick a price, then ask whether the payment works. Reverse it. Work out the monthly housing payment your income can carry, then find the price that produces it. The Consumer Financial Protection Bureau (CFPB) defines your debt-to-income ratio, or DTI, as all your monthly debt payments divided by your gross monthly income.
The classic version of that test is the 28/36 rule, and both halves use gross monthly income, before taxes and deductions. The front-end ratio caps total monthly housing cost at 28%; the back-end ratio caps housing plus every other monthly debt payment at 36%. On $100,000 a year, gross monthly income is $8,333, so the caps are $2,333 for housing and $3,000 for housing plus all other debts.
Your other debts decide the real budget
The back-end ratio counts minimum payments on car loans, student loans, credit cards, and personal loans, because that money is already spoken for. The CFPB's example makes it plain: $1,500 of housing plus $100 of auto loan plus $400 of other debts is $2,000 of monthly debt, or 33% of $6,000 gross monthly income. On our $100,000 household, $600 a month of other debts leaves $2,400 for housing, so the $2,333 front-end cap still binds, but $1,000 a month leaves only $2,000.
PITI, not principal and interest alone
The housing figure in both ratios is PITI: principal, interest, property taxes, and homeowners insurance. Principal and interest are only the first two letters. Taxes and insurance are usually collected monthly through escrow and vary sharply by location, so the same loan can feel very different in a high-tax county and a low-tax one. Mortgage insurance, where it applies, sits on top of PITI, as do association dues. Never judge a home on the principal-and-interest figure a listing site shows you; our mortgage payments with taxes and insurance guide breaks down the full payment.
The 3-times-income rule: a cross-check, not a verdict
You will often hear that you can afford a home worth about three times your gross annual income: $300,000 on $100,000, $240,000 on $80,000. It is a useful smell test and roughly matches the 28/36 rule at ordinary rates, but it is not a lender rule and it ignores what makes buyers different: debts, down payment, interest rate, and local taxes. If the two methods disagree, trust the 28/36 answer.
The table below applies the 28/36 rule at several incomes, assuming 20% down, 6.5% over 30 years, taxes of 1.0% of the price a year, and insurance of 0.35% a year, with no other debts. For one income in detail, see how much house you can afford on a 60k salary, or rerun every assumption in the mortgage calculator.
| Gross annual income | Max PITI at 28% | Illustrative price, 20% down |
|---|---|---|
| $60,000 | $1,400 | about $226,000 |
| $80,000 | $1,867 | about $302,000 |
| $100,000 | $2,333 | about $377,000 |
| $120,000 | $2,800 | about $453,000 |
A worked example: the $350,000 home
A $350,000 purchase with 20% down means a $70,000 down payment and a $280,000 loan. At 6.5% over 30 years, the standard amortisation formula gives principal and interest of about $1,770 a month. Taxes at 1.0% of the price add about $292 a month, and insurance at 0.35% adds about $102 a month, so total PITI is about $2,164 a month.
Against the $100,000 household's $2,333 front-end cap, that home fits, with about $169 a month to spare. But the same home on the same income with $1,000 a month of other debts fails the back-end test: $2,164 plus $1,000 is $3,164, above the $3,000 cap.
20% down versus PMI: the real trade-off
The CFPB explains that private mortgage insurance, or PMI, is usually required on a conventional loan with a down payment of less than 20% of the purchase price, and that it protects the lender, not you. The trade-off is timing against monthly cost: a smaller down payment gets you into a home sooner, but it means a bigger loan and an extra monthly premium on top of PITI.
The same $350,000 home with only 10% down means a $315,000 loan, and principal and interest at 6.5% over 30 years rise to about $1,991 a month. Add the same $292 of taxes and $102 of insurance and the payment is already about $2,385 a month, above the $2,333 front-end cap, before a single dollar of PMI. A small down payment is not wrong, but price the premium in honestly.
Cash beyond the down payment
The down payment is not the whole cash bill. Closing costs arrive on top of it: the CFPB lists appraisal fees, title insurance, government taxes, and prepaid taxes and insurance among the usual charges, and notes that even costs you do not pay directly out of pocket are usually paid through a higher price or a higher rate instead. Budget for them separately.
Approval is a ceiling, not a target
Lenders approve on their own criteria, which may allow a higher debt-to-income ratio than the 28/36 rule, and they do not see your retirement saving or childcare costs. The largest loan you are offered is therefore best read as the most you could borrow, not the most you should spend. When you are ready, our mortgage pre-approval explainer covers what pre-approval is and what it asks of you.
Sources & further reading
- Consumer Financial Protection Bureau, What is a debt-to-income ratio?DTI definition (verified 5 Nov 2026).
- Consumer Financial Protection Bureau, What is private mortgage insurance?PMI below 20% down (verified 5 Nov 2026).
- Consumer Financial Protection Bureau, What fees are paid when closing on a mortgage?Closing cost items (verified 5 Nov 2026).
This article is general information only, not financial advice.