How Much House Can I Afford? A Real-Numbers Breakdown

You’ve been scrolling Zillow at midnight again. You found a place that looks perfect — the kitchen, the yard, the neighborhood — and now you’re lying awake wondering: Can I actually afford this?

You’re not alone. According to the National Association of Realtors (NAR), the median existing-home sale price in the United States reached $407,500 in late 2024. With numbers like that, figuring out what you can realistically afford isn’t just a nice exercise — it’s the most important financial calculation you’ll make this year.

Let’s walk through this together, step by step, with real numbers.

Step 1: Understand What Lenders Actually Look At

Before you fall in love with a listing, you need to understand how mortgage lenders decide what you can borrow. They don’t care about your Pinterest boards. They care about two ratios.

The 28/36 Rule

This is the standard guideline most conventional lenders use:

• The 28% rule (front-end ratio): Your total monthly housing costs — mortgage principal, interest, property taxes, and homeowners insurance (often called PITI) — should not exceed 28% of your gross monthly income.
• The 36% rule (back-end ratio): Your total monthly debt payments — housing costs plus car loans, student loans, credit card minimums, and any other recurring debt — should not exceed 36% of your gross monthly income.

These aren’t laws. They’re guidelines. Some loan programs (like FHA loans) allow higher ratios — up to 31% front-end and 43% back-end. But exceeding these thresholds means higher risk, and lenders may charge you a higher interest rate or require a larger down payment to compensate.

The Other Factors

Beyond the ratios, lenders evaluate:

• Credit score: According to Experian, the average FICO score for approved mortgage borrowers is around 750. Borrowers with scores below 620 generally won’t qualify for conventional loans, though FHA loans may be available with scores as low as 580.
• Down payment: A 20% down payment eliminates private mortgage insurance (PMI), which typically costs 0.5% to 1.5% of the loan amount annually, according to the Urban Institute. Putting down less is possible, but it adds to your monthly cost.
• Employment history: Lenders typically want to see at least two years of stable income. Self-employed borrowers often need to show two years of tax returns.
• Cash reserves: Many lenders want to see two to six months of mortgage payments sitting in your bank account after closing.

Step 2: Run the Numbers at Three Income Levels

Let’s make this concrete. We’ll use a 30-year fixed mortgage at 6.5% interest (near the Freddie Mac Primary Mortgage Market Survey average as of early 2025), a 20% down payment, and assume property taxes of 1.1% of the home’s value (the national average according to the Tax Foundation) plus $1,200 per year in homeowners insurance.

Example 1: $60,000 Annual Income

Gross monthly income: $5,000

28% of gross monthly income: $1,400

This $1,400 is your maximum monthly housing cost, including principal, interest, taxes, and insurance.

Working backward from that number:

• Maximum home price: approximately $235,000
• Down payment (20%): $47,000
• Loan amount: $188,000
• Estimated monthly mortgage (P&I): $1,188
• Property taxes: ~$215/month
• Homeowners insurance: ~$100/month
• Total PITI: ~$1,503

Notice that total actually exceeds $1,400. To stay within the 28% guideline, you’d need to target closer to $215,000 to $220,000 — or put more than 20% down.

The 36% check: At $60,000 income, your total monthly debt should stay under $1,800. If you have a $300/month car payment and $200/month in student loans, that leaves only $1,300 for housing — which drops your affordable home price to roughly $195,000.

Example 2: $80,000 Annual Income

Gross monthly income: $6,667

28% of gross monthly income: $1,867

• Maximum home price: approximately $310,000
• Down payment (20%): $62,000
• Loan amount: $248,000
• Estimated monthly mortgage (P&I): $1,567
• Property taxes: ~$284/month
• Homeowners insurance: ~$100/month
• Total PITI: ~$1,951

Again, the math is tight. A more comfortable target would be $280,000 to $295,000.

The 36% check: Total debt ceiling is $2,400/month. With $500/month in existing debt, you have $1,900 for housing — which aligns well with the front-end ratio at around $290,000.

Example 3: $120,000 Annual Income

Gross monthly income: $10,000

28% of gross monthly income: $2,800

• Maximum home price: approximately $465,000
• Down payment (20%): $93,000
• Loan amount: $372,000
• Estimated monthly mortgage (P&I): $2,351
• Property taxes: ~$426/month
• Homeowners insurance: ~$125/month
• Total PITI: ~$2,902

To stay at 28%, you’d target closer to $440,000 to $450,000.

The 36% check: Total debt ceiling is $3,600/month. Even with $600/month in existing debt, $3,000 for housing keeps you comfortably within range.

Step 3: Factor In What the Calculators Miss

The 28/36 rule tells you what a lender will approve. It does not tell you what you can comfortably afford. There’s a significant difference.

Your Real Budget Has More Lines

Your gross income is not your take-home pay. Federal income tax, state income tax, Social Security, Medicare, health insurance premiums, and retirement contributions can reduce your paycheck by 25% to 40%. A household earning $80,000 gross might take home $55,000 to $60,000 — which means that $1,867/month mortgage is actually consuming closer to 35-40% of the money that hits your bank account.

Expenses the 28/36 Rule Ignores

• Childcare (the average annual cost of center-based infant care is $15,417, according to Child Care Aware of America’s 2023 report)
• Healthcare costs beyond insurance premiums
• Groceries and utilities (which may increase with a larger home)
• Saving for retirement (financial planners commonly recommend at least 15% of gross income)
• An emergency fund (three to six months of expenses is the common guideline)

The Maintenance Reality

The common rule of thumb is to budget 1% to 2% of your home’s value annually for maintenance and repairs. On a $300,000 home, that’s $3,000 to $6,000 per year — or $250 to $500 per month — that doesn’t appear anywhere in the 28/36 calculation.

For a full picture of what homeownership really costs beyond the mortgage, read our guide to the hidden costs of buying a house.

Step 4: Avoid These Common Mistakes

Mistake 1: Shopping at Your Maximum Approval

Just because a lender approves you for $400,000 doesn’t mean you should spend $400,000. Lenders are evaluating whether you can make the payment, not whether you’ll enjoy your life while doing it. Many financial planners suggest keeping housing costs at or below 25% of your gross income for a more comfortable budget.

Mistake 2: Forgetting About PMI

If you put down less than 20%, you’ll pay private mortgage insurance. On a $300,000 home with 5% down ($15,000), the loan amount is $285,000 and PMI might cost $119 to $356 per month (at 0.5% to 1.5% of the loan amount annually). That’s a significant addition to your monthly payment.

Mistake 3: Ignoring Your Future Self

Are you planning to have kids in the next few years? Change careers? Go back to school? Your mortgage payment is locked in for 30 years — your income and expenses aren’t. Build a cushion for life changes.

Mistake 4: Comparing Your Budget to Social Media

The median household income in the United States was approximately $80,610 in 2023, according to the U.S. Census Bureau. If you’re earning near that and feeling like you can’t afford anything, you’re not doing something wrong — housing has become genuinely expensive relative to incomes. The NAR reports that housing affordability in 2024 was near its lowest level in decades.

Mistake 5: Not Accounting for the Full Decision

Buying isn’t always better than renting. If you’re not sure whether purchasing makes sense for your timeline and market, our rent vs. buy comparison guide walks through the breakeven math in detail.

Step 5: Run Your Own Numbers

The examples above use national averages. Your situation is different. Property taxes in New Jersey average over 2.2% of home value (Tax Foundation), while in Hawaii they average around 0.3%. Insurance costs vary widely by state and proximity to flood or fire zones. And your interest rate depends on your credit profile.

That’s why plugging in your own numbers matters. Use our Can I Afford This House? calculator to see a personalized breakdown based on your actual income, debts, and local costs. It takes about 60 seconds and doesn’t require an account.

For a deeper look at what you’ll actually spend beyond the sticker price, the Hidden Cost Revealer walks through closing costs, move-in expenses, and first-year surprises that catch most buyers off guard.

What I’d Tell a Friend

If a friend asked me “how much house can I afford?” over coffee, here’s what I’d say:

1. Start with the 28/36 rule as a ceiling, not a target. It tells you the maximum — aim lower.
2. Use your take-home pay, not gross income, to reality-check the number. If your mortgage would eat more than 30% of your actual paycheck, you’ll feel it every month.
3. Add $300-$500/month to whatever you think the mortgage will be, for taxes, insurance, maintenance, and the things you haven’t thought of yet.
4. If the number feels tight, it probably is. There’s no shame in buying less house than you qualify for. The people who are happiest with their purchase are usually the ones who left room in their budget to live their lives.

You don’t have to figure all of this out in your head. Run your numbers through our affordability calculator and get a clear answer in about a minute.

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This content is for informational purposes only and does not constitute financial advice. Consult a licensed financial advisor for guidance specific to your situation.