How much house can you afford? A plain-English guide

By Kepler Oates · Updated Oct 23, 2026

This guide is for you if you're thinking about buying a home and want a realistic price range before you talk to a lender or fall in love with a listing. We'll break down what a monthly mortgage payment is made of, walk through a common rule of thumb lenders use, run the numbers on an example home, and cover the costs that catch first-time buyers off guard.

One idea to hold onto throughout: what a lender will approve and what you can comfortably afford are two different numbers. A lender looks at whether you're likely to repay. Only you know what else you want your money to do.

What's in a monthly mortgage payment

Your monthly housing cost is often described with the acronym PITI:

• Principal: the part of each payment that pays down the amount you borrowed.
• Interest: what the lender charges for the loan. Early in a mortgage, most of each payment goes to interest. Over time the balance falls and more goes to principal.
• Taxes: property tax, set by your local government. It varies a lot from place to place.
• Insurance: homeowners insurance, which lenders usually require.

Principal and interest together are the loan payment itself. Taxes and insurance are often collected by the lender along with it and held in an escrow account, then paid on your behalf when they're due.

Two more costs can sit on top:

• HOA dues if the home is in a community with a homeowners association.
• Mortgage insurance (PMI) if your down payment is small. More on that below.

The 28/36 rule of thumb

A guideline many lenders and financial writers use is the 28/36 rule:

• 28%: your monthly housing costs (PITI, plus HOA if any) should be no more than about 28% of your gross monthly income, meaning income before taxes.
• 36%: your housing costs plus all other monthly debt payments (car loan, student loans, credit card minimums and so on) should be no more than about 36% of gross monthly income.

The share of income going to debt is called your debt-to-income ratio, or DTI. Lenders' actual limits depend on the loan type and your full financial picture, and some allow higher ratios than 28/36. Treat it as a starting point for your own planning, not a rule a lender must follow.

Working out your numbers

Example: a household earns $90,000 a year before taxes and pays $400 a month on a car loan.

• Gross monthly income: 90,000 ÷ 12 = $7,500
• 28% limit for housing: 7,500 × 0.28 = $2,100
• 36% limit for all debt: 7,500 × 0.36 = $2,700
• Room for housing under the 36% limit: 2,700 − 400 = $2,300

Use the lower of the two housing figures. Here that's $2,100 a month. If the car payment were $800 instead, the 36% limit would leave only 2,700 − 800 = $1,900 for housing, and that would become the tighter number.

From a monthly budget to a home price

Now turn $2,100 a month into a price range. The example assumptions below are for illustration only; rates, taxes and insurance costs differ by place and change over time, so plug in quotes for your own situation.

Example assumptions: 30-year fixed mortgage at 6.5% interest, 20% down payment, property tax of 1.1% of the home price per year, homeowners insurance of $1,800 a year, no HOA.

A $300,000 home

• Down payment: 300,000 × 0.20 = $60,000
• Loan amount: 300,000 − 60,000 = $240,000
• Principal and interest: $1,516.96 a month (using the standard loan payment formula)
• Property tax: 300,000 × 0.011 ÷ 12 = $275.00 a month
• Insurance: 1,800 ÷ 12 = $150.00 a month
• Total: 1,516.96 + 275.00 + 150.00 = $1,941.96

That's under the $2,100 guideline, at about 25.9% of gross income (1,941.96 ÷ 7,500). Add the $400 car payment and total debt is $2,341.96, or about 31.2% of income, under 36%.

A $350,000 home

• Loan amount: 350,000 × 0.80 = $280,000
• Principal and interest: $1,769.79
• Property tax: 350,000 × 0.011 ÷ 12 = $320.83
• Insurance: $150.00
• Total: $2,240.62, which is over the $2,100 guideline.

Running a price in between, $325,000 comes to $1,643.38 + $297.92 + $150.00 = $2,091.30, just under. So with these example assumptions, this household's guideline price is roughly $325,000.

The total interest is worth seeing, too. On the $300,000 home's $240,000 loan, paying as scheduled for 30 years adds up to about $306,107 in interest, more than the loan itself. Extra payments toward principal can cut that substantially.

Down payments and PMI

The down payment changes two things: how much you borrow and whether you pay mortgage insurance.

Here's the $300,000 home with different down payments, using the same 6.5% example rate and adding the same $275 tax and $150 insurance:

Down payment	Cash needed	Loan amount	Principal and interest	With tax and insurance
5%	$15,000	$285,000	$1,801.39	$2,226.39
10%	$30,000	$270,000	$1,706.58	$2,131.58
20%	$60,000	$240,000	$1,516.96	$1,941.96

At 5% or 10% down, this home goes over the $2,100 guideline before mortgage insurance is added.

Private mortgage insurance (PMI) is commonly required on conventional loans when you put down less than 20%. It protects the lender, not you, if you stop paying. The cost depends on your loan, credit and down payment, so ask lenders for real quotes. On many conventional loans PMI can be removed once you've built enough equity; ask how that works on any loan you consider. Government-backed loans have their own mortgage insurance rules.

A smaller down payment isn't automatically a mistake. It can get you into a home sooner. Just compare the full monthly cost, including mortgage insurance, and don't empty your savings to make the down payment.

The costs people forget

The monthly payment isn't the whole cost of owning a home. Plan for:

• Closing costs. Lender fees, appraisal, title and other charges, paid when you buy. They can add up to thousands of dollars. In the US, lenders give you a standard Loan Estimate form that lists them, which makes offers easier to compare.
• Maintenance and repairs. Roofs, water heaters and appliances wear out, and there's no landlord to call. A rule of thumb some people use is to set aside around 1% of the home's price per year. On a $300,000 home that's 300,000 × 0.01 = $3,000 a year, or $250 a month. Older homes may need more.
• Utilities. A house can cost more to heat, cool and water than an apartment.
• Moving, furniture and setup. Movers, window coverings, tools, a lawn mower.
• Rising taxes and insurance. Both can go up over time, which raises your payment even on a fixed-rate loan.
• An emergency fund. Homeowners need a cushion for surprises. The Emergency Fund Calculator can help you size one.

Common mistakes

• Shopping at the top of your approval. A lender's maximum doesn't account for your other goals, like saving for retirement or children's costs.
• Comparing only principal and interest. Taxes, insurance, HOA and PMI can add hundreds of dollars a month.
• Spending every dollar on the down payment. Leave money for closing costs, moving and an emergency fund.
• Ignoring other debts. A big car payment can shrink your home budget more than you'd expect under the 36% guideline.
• Forgetting maintenance. Repairs are a regular cost of ownership, not a rare surprise.
• Using last year's rate. Rates move. Get current quotes from more than one lender.

Do the work this week

1. Find your guideline numbers. Divide your yearly gross income by 12, then multiply by 0.28 and 0.36. Subtract your monthly debt payments from the 36% figure and use the lower result.
2. Test a few home prices. Open the Loan and Mortgage Calculator and choose Mortgage. Enter a home price, down payment percentage, interest rate, term, property tax rate, yearly insurance and any HOA. It shows the principal-and-interest payment, the total monthly cost with tax, insurance and HOA, total interest and the payoff date. Note that it doesn't include PMI, so add a lender's estimate if you're putting down less than 20%.
3. Price your hidden costs. Look up property tax rates where you want to live, get a homeowners insurance quote, and set a monthly maintenance amount.

Frequently asked questions

← All guides