How Much House Can You Afford? A Practical Affordability Framework

The 28/36 rule is the most widely referenced guideline for housing affordability. It states:

• Your front-end ratio (housing costs only) should not exceed 28% of your gross monthly income
• Your back-end ratio (all monthly debt payments combined) should not exceed 36% of your gross monthly income

These thresholds are guidelines used by conventional lenders as starting points for underwriting. Other loan programs apply different limits, and individual lender overlays may tighten or loosen these figures depending on your credit score and other compensating factors.

According to the Consumer Financial Protection Bureau's debt-to-income guidance, lenders generally consider a back-end DTI above 43% a meaningful risk threshold — and many qualified mortgage rules are calibrated around that number.

FHA loans may allow back-end DTI up to 50% in some cases with compensating factors such as significant cash reserves or a strong credit score.

Front-End DTI: Housing Costs

Back-End DTI: Total Debt Obligations

Mortgage lenders use your debt-to-income ratios as the primary affordability measure, but several additional factors influence the loan amount you may qualify for and the interest rate you will be offered:

Credit Score

Down Payment

Interest Rate Environment

The following example illustrates how to apply the 28/36 framework to a real scenario.

Assumptions:

• Gross annual income: $90,000 ($7,500/month)
• Existing monthly debt: $450 (car loan + minimum student loan payment)
• Credit score: 720
• Down payment available: $40,000
• Current 30-year fixed rate (illustrative): 6.75%

Step 1 — Calculate front-end ceiling: $7,500 × 28% = $2,100/month maximum housing payment (PITI)

Step 2 — Calculate back-end ceiling: $7,500 × 36% = $2,700 total debt. Subtract $450 existing debt = $2,250/month available for housing. The binding constraint is the front-end: $2,100.

Step 3 — Subtract non-principal/interest costs: Estimate property taxes at 1.2% of home value (varies significantly by location), homeowner's insurance at ~$150/month, and PMI at ~$100/month (if applicable).

If taxes + insurance + PMI total approximately $500/month, your principal + interest ceiling is $1,600/month.

Step 4 — Calculate approximate loan amount: At 6.75% for 30 years, a $1,600/month principal + interest payment supports a loan of approximately $240,000.

Step 5 — Add down payment: $240,000 loan + $40,000 down = approximately $280,000 purchase price.

This is a simplified illustration. Actual qualification depends on lender underwriting, the specific property's tax and insurance costs, and other factors. Use the CFPB's Owning a Home tools to explore loan options and compare rates.

Mortgage payment is only one component of true housing cost. Buyers who focus only on the mortgage payment often underestimate total ownership expenses:

• Property taxes — vary significantly by location. According to available data, effective property tax rates range from approximately 0.3% of home value annually in some Nevada counties to over 2.2% in parts of New Jersey. On a $350,000 home, that is a range of $1,050 to $7,700 per year.
• Homeowner's insurance — typically $1,000–$2,000 per year nationally, but may be significantly higher in areas with high wildfire, flood, or hurricane risk. Flood insurance through the National Flood Insurance Program is separate and required in designated flood zones.
• HOA fees — if applicable, these may range from under $100 to over $500 per month and must be included in your housing cost calculation.
• Maintenance and repairs — a commonly cited rule of thumb is to budget 1–2% of the home's value per year for ongoing maintenance. For a $300,000 home, that is $3,000–$6,000 annually, or $250–$500 per month.
• Utilities — homeowners typically pay more in utilities than renters, particularly for larger properties or older homes with less energy efficiency.

When all of these costs are included, the 'true' monthly cost of homeownership is often 30–40% higher than the mortgage payment alone.

Prospective buyers should also budget for home inspection costs before closing, and understand the amortization schedule of their mortgage to see how payments shift over time.

Qualifying for a loan does not mean a purchase is financially wise. Several risk factors deserve careful consideration:

• Buying at the top of your qualification range — being "house poor" (spending so much on housing that other savings goals are impossible) is a real risk. Consider targeting 20–25% of gross income rather than the 28% ceiling.
• Variable income — self-employed borrowers, those with commission-heavy compensation, or gig workers may find lenders use a two-year income average. A recent income increase may not fully count.
• Rate risk on adjustable-rate mortgages (ARMs) — ARMs may offer a lower initial rate that resets after a fixed period. If rates rise at reset, monthly payments may increase significantly.
• Market risk — home values may decline. Buying with minimal down payment in a declining market may leave you underwater (owing more than the home is worth).
• Job stability — a 30-year mortgage is a long commitment. Consider how secure your income is likely to be before committing to a high payment.

HUD-approved housing counseling agencies offer free or low-cost pre-purchase counseling. Information on finding a HUD-approved counselor is available through the HUD home buying resources page.