"How much house can I afford?" is the first question every homebuyer asks. The answer isn't a single number — it depends on your income, existing debts, down payment, credit score, and local property taxes. But there are reliable formulas that give you a solid starting point.
The 28/36 Rule: What Lenders Actually Use
Most mortgage lenders use the 28/36 rule to determine how much you can borrow. This rule has two parts:
- **Front-end ratio (28%)**: Your total housing costs — mortgage payment, property taxes, homeowners insurance, and HOA fees — should not exceed 28% of your gross monthly income.
- **Back-end ratio (36%)**: Your total monthly debts — housing costs plus car payments, student loans, credit cards, and other debts — should not exceed 36% of your gross monthly income.
For example, if you earn $8,000 per month gross (about $96,000/year), your maximum housing cost would be $2,240 per month (28%), and your total debt payments should stay under $2,880 per month (36%).
How Much House Can You Afford by Salary?
Here's a quick reference based on a 6.5% interest rate, 30-year term, 20% down payment, and typical property taxes and insurance:
- **$50,000 salary**: $175,000 - $225,000 home
- **$75,000 salary**: $275,000 - $325,000 home
- **$100,000 salary**: $375,000 - $450,000 home
- **$125,000 salary**: $475,000 - $575,000 home
- **$150,000 salary**: $575,000 - $700,000 home
- **$200,000 salary**: $775,000 - $950,000 home
These ranges assume no significant existing debt. Car payments, student loans, and credit card minimums reduce your buying power significantly.
Factors That Increase Your Buying Power
**Larger down payment**: A 20% down payment avoids PMI, but even going from 10% to 15% increases your approved amount. On a $400,000 home, that's an extra $20,000 down but eliminates roughly $150/month in PMI.
Run the numbers for your situation: Use our free home affordability calculator to find out how much house you can afford based on your income and debts.
**Lower interest rate**: Every 0.25% rate decrease adds roughly $10,000-$15,000 to your buying power on a 30-year mortgage. Shopping around for rates is one of the highest-ROI activities in the homebuying process.
**Pay down existing debt**: Reducing your car payment by $400/month could increase your approved mortgage by $60,000-$80,000. Before house hunting, consider aggressively paying down credit cards and auto loans.
**Improve your credit score**: The difference between a 680 and 760 credit score can mean 0.5-1.0% lower interest rate, which translates to tens of thousands in additional buying power.
Factors That Decrease Your Buying Power
**High property taxes**: In New Jersey (average 2.23%), property taxes on a $400,000 home cost about $8,920/year ($743/month). In Hawaii (0.28%), the same home costs just $1,120/year. This dramatically affects what you can afford in different states.
**HOA fees**: Monthly HOA fees of $300-$500 directly reduce your borrowing capacity by roughly $45,000-$75,000.
**Private Mortgage Insurance**: If you put less than 20% down, PMI adds 0.3-1.5% of the loan amount annually, reducing your effective buying power.
Common Mistakes When Calculating Affordability
**Using take-home pay instead of gross**: Lenders use gross (pre-tax) income for DTI calculations. If your paycheck shows $5,000/month but your gross is $6,500, use $6,500.
**Forgetting hidden homeownership costs**: Budget 1-2% of the home's value annually for maintenance. A $400,000 home costs roughly $4,000-$8,000/year in upkeep — roof repairs, HVAC maintenance, plumbing, landscaping.
**Maxing out your budget**: Just because you can get approved for a $500,000 mortgage doesn't mean you should. Most financial advisors recommend spending 20-25% of take-home pay on housing to leave room for savings, retirement, and emergencies.
**Ignoring future life changes**: Will you have kids? Change jobs? Need a new car? Build in a buffer for life changes that affect your income or expenses.
The Bottom Line
Your affordable home price depends on more than just your salary. Factor in all debts, plan for hidden costs, and resist the urge to stretch to the maximum. The sweet spot is a mortgage payment that feels comfortable even if your income drops 10-15%.
Use a home affordability calculator to run your specific numbers. Plug in your real income, all your debts, your actual down payment, and local property tax rates. The calculator will give you a much more accurate answer than any rule of thumb.
