How Much House Can I Afford? The 28/36 Rule
Keep housing under 28% of your gross monthly income and all debt payments under 36%. On $7,000 a month that caps the whole house payment at $1,960. The bank will happily approve you for a good deal more, and the gap between those two numbers is exactly the trap.
The two limits
Both are worked out from your gross - before-tax - monthly income. The stricter one wins.
28% on housing. That is the whole payment: loan, property tax and insurance together. Not just the mortgage part.
36% on everything. Housing plus every other debt payment - car loans, student loans, card minimums.
Say you earn $84,000, so $7,000 a month.
- The 28% cap is $1,960.
- The 36% cap is $2,520. Take off a $450 car payment and $250 of student loans and you are left with $1,820 for housing.
The second one is tighter, so $1,820 is your real number. Those two debts just cost you about $23,000 of house.
That is the rule doing its job - connecting the house to everything else you owe.
What each income supports
With 20% down, 6.5%, 30 years, 1.1% property tax, $1,500 a year insurance and no other debts:
| You earn | A month | 28% housing cap | House price |
|---|---|---|---|
| $72,000 | $6,000 | $1,680 | $260,000 |
| $84,000 | $7,000 | $1,960 | $307,000 |
| $96,000 | $8,000 | $2,240 | $354,000 |
| $120,000 | $10,000 | $2,800 | $448,000 |
Change any of those assumptions and the price moves. A higher rate, a smaller deposit, an HOA fee, another debt - all of them come out of the same cap. The home affordability calculator does this with your own figures and shows the lender’s number next to the careful one.
Why pre-approval is not a budget
Lenders will approve total debt at 43% of gross income, and under some programmes more.
Their model asks one question: will this person repay? It does not ask whether you will also be able to save for retirement, replace a car, or get through three months without work.
The gap between 36% and 43% of your income is not spare money. It is the money that would otherwise become your emergency fund and your retirement savings.
A better way to think about the rule: it is not a limit on the house. It is protection for the other 64% of your income, which has jobs of its own.
The costs first-time buyers miss
Closing costs. Due on the day, on top of the deposit, and they are larger than people expect. The closing costs calculator works out yours - on a $400,000 purchase it is often $12,000 or more.
Mortgage insurance. Usually required if you put down less than 20%. Under the Homeowners Protection Act you can ask for it to be removed once the balance is scheduled to reach 80% of the original value, and the lender must end it automatically at 78%. The PMI calculator shows when that happens on your loan.
Maintenance. A common planning figure is about 1% of the value a year. It is a rule of thumb rather than a measurement, and boilers do not consult your budget.
The moving-in bulge. Furniture, tools, and the repairs you find in the first month. Price yours in the moving cost calculator rather than guessing.
Four steps
- Work out both caps from your own income and debts.
- Price the house honestly, with tax and insurance in the payment.
- Build the deposit as a dated goal with the savings goal calculator.
- Keep your emergency fund intact through closing. A new house with no cushion behind it is how people end up putting a boiler on a credit card.
Then stress-test it
Take your real scenario and make it worse on purpose.
Add half a point to the rate. Drop the deposit to 10% and watch the mortgage insurance appear. Add the car payment you are about to take on.
If the stressed version breaks your budget, the unstressed version was luck rather than affordability. Better to find that out now than in year two.
Run yours in the home affordability calculator - it shows what a lender would approve and what is actually comfortable, side by side.
Common questions about home affordability
What is the 28/36 rule?
Spend at most 28% of gross monthly income on housing - the loan payment, property tax and insurance together - and at most 36% on all debt payments including that housing cost. Whichever limit is tighter is your real cap.
How much house can I afford on $84,000 a year?
That is $7,000 a month gross, so the 28% cap is $1,960. With 20% down at 6.5% and typical tax and insurance, that supports a house around $307,000 - less if you carry other debt payments.
Is pre-approval the same as affordability?
No. Lenders will approve total debt of 43% of gross income and sometimes more, because their question is whether you will repay, not whether you will still be able to save. Pre-approval is their ceiling, not your budget.
Do other debts really change it that much?
Yes. On $7,000 a month, a $450 car payment and $250 of student loans drop the housing cap from $1,960 to $1,820 - which is about $23,000 less house.
Do HOA fees count?
Include them, or the rule stops protecting you. They are an unavoidable monthly housing cost, so a $350 fee reduces the loan payment you can afford by the same $350.