How Much House Can I Afford? The 28/36 Rule Explained

Buying a home is probably the biggest financial decision you'll ever make. Get it right, and you build wealth for decades. Get it wrong, and you end up "house poor" — technically a homeowner, but unable to save, invest, or enjoy life because every dollar goes toward your mortgage.

So how do you figure out the sweet spot? The number that lets you own a home you love without sacrificing everything else? Let's break it down with real numbers, actual formulas, and a complete walkthrough you can follow along with.

The 28/36 Rule Explained

Lenders and financial advisors have used the 28/36 rulefor decades, and for good reason — it works. Here's what it means:

• 28% rule: Your total housing costs should not exceed 28% of your gross monthly income. Housing costs include your mortgage principal, interest, property taxes, and homeowner's insurance (often called PITI).
• 36% rule: Your total monthly debt payments — housing plus car loans, student loans, credit cards, and any other debt — should not exceed 36% of your gross monthly income.

Notice it says gross income, not take-home pay. That's your salary before taxes and deductions come out. This trips a lot of people up because it makes the numbers look more generous than they feel in practice.

Let's say you earn $75,000 per year. Your gross monthly income is $6,250. Under the 28/36 rule:

• Max housing payment: $6,250 × 0.28 = $1,750/month
• Max total debt: $6,250 × 0.36 = $2,250/month

If you already have a $400/month car payment and $150/month in student loans, your total non-housing debt is $550. That means the 36% rule limits your housing payment to $2,250 − $550 = $1,700/month. In this case, the 36% rule is actually more restrictive than the 28% rule, so $1,700 becomes your real ceiling.

Complete Example: From Salary to Max Home Price

Let's walk through a full example. Meet Sarah: she earns $75,000 per year, has $550/month in existing debt, and has saved $40,000 for a down payment. She's looking at a 30-year fixed mortgage at 6.5% interest.

Step 1: Find the max monthly payment.Using the 28/36 rule, Sarah's housing budget is $1,700/month (the tighter of the two limits, as we calculated above).

Step 2: Subtract taxes, insurance, and PMI. Not all of that $1,700 goes toward the mortgage itself. She needs to account for:

• Property taxes: roughly 1.1% of home value per year
• Homeowner's insurance: about $1,200/year ($100/month)
• PMI (private mortgage insurance): about 0.5–1% of the loan annually if she puts less than 20% down

For a $300,000 home, property taxes would be about $275/month, and PMI on a $260,000 loan (with $40,000 down, which is about 13%) would run around $130/month. That's $505/month in non-mortgage costs, leaving $1,195/month for the actual mortgage principal and interest.

Step 3: Calculate the max loan amount. At 6.5% on a 30-year fixed mortgage, a monthly payment of $1,195 supports a loan of roughly $189,000. Add her $40,000 down payment and Sarah can afford a home around $229,000.

That might feel lower than expected. The taxes, insurance, and PMI ate up nearly 30% of her housing budget before a single dollar went toward the loan. This is exactly why it's critical to account for every cost. Use our mortgage calculator to plug in your own numbers and see where you land.

The Hidden Costs Beyond Your Mortgage Payment

Your mortgage payment is just the beginning. Many first-time buyers are shocked by how much homeownership actually costs month to month. Here are the big ones:

Property taxesvary wildly by location. The national average is about 1.1% of assessed home value, but New Jersey homeowners pay closer to 2.2% while Hawaii residents pay around 0.3%. On a $300,000 home, that's anywhere from $75 to $550 per month.

Homeowner's insuranceaverages about $1,200 per year nationally, but can be $3,000+ in hurricane- or wildfire-prone areas. Shop around — quotes can vary by 50% between providers for the same coverage.

PMI (Private Mortgage Insurance)kicks in when your down payment is less than 20%. It typically costs 0.5% to 1% of your loan amount per year. On a $260,000 loan, that's $1,300 to $2,600 annually. The good news: PMI drops off once you reach 20% equity.

Maintenance and repairsare the cost most people forget entirely. A common rule of thumb is to budget 1% of your home's value per year for upkeep. That's $3,000/year on a $300,000 home, or $250/month tucked away for the roof, HVAC, plumbing, and all the other things that eventually break.

How Interest Rates Change Everything

Interest rates have a massive impact on how much home you can afford — far more than most people realize. A single percentage point swing can shift your buying power by tens of thousands of dollars.

Let's compare. Assume you can afford a $1,500/month mortgage payment (principal and interest only) on a 30-year fixed loan:

• At 6% interest: You can borrow about $250,200
• At 7% interest: You can borrow about $225,500
• At 8% interest: You can borrow about $204,400

That single point from 6% to 7% costs you $24,700 in buying power. Going from 6% to 8% wipes out nearly $46,000. Same monthly payment, dramatically different homes you can afford.

It gets even more striking when you look at total interest paid. On a $250,000 loan over 30 years, you'll pay about $289,600 in interest at 6% versus $348,800 at 7%. That's an extra $59,200 out of your pocket over the life of the loan for just one percentage point.

This is why even a quarter-point rate difference is worth fighting for. Improving your credit score, shopping multiple lenders, or buying points can save you thousands.

How Your Down Payment Affects Affordability

Your down payment is the single biggest lever you control. A larger down payment does three things at once: it reduces your loan amount, eliminates or reduces PMI, and often gets you a better interest rate.

Let's look at a $300,000 home with a 6.5% rate:

• 5% down ($15,000): Loan of $285,000, monthly P&I of $1,801, plus ~$178/month PMI = $1,979/month
• 10% down ($30,000): Loan of $270,000, monthly P&I of $1,707, plus ~$135/month PMI = $1,842/month
• 20% down ($60,000): Loan of $240,000, monthly P&I of $1,517, no PMI = $1,517/month

The difference between 5% and 20% down is $462 per month — that's $5,544 per year you can put toward other financial goals. Of course, coming up with $60,000 is no small feat. Our down payment calculator can help you figure out the right savings timeline based on your situation.

One important note: don't drain your entire savings for the down payment. You'll want an emergency fund of at least 3–6 months of expenses, plus cash for closing costs (typically 2–5% of the purchase price) and moving expenses.

Practical Tips Before You Start Shopping

Before you start browsing listings, take a few smart steps that will save you money and headaches:

Get pre-approved, not just pre-qualified. Pre-qualification is a rough estimate. Pre-approval means the lender has actually verified your income, assets, and credit. Sellers take pre-approved buyers far more seriously, especially in competitive markets.

Check your credit score early.Your credit score directly affects your interest rate. A score of 760+ gets you the best rates, while anything below 680 can add 0.5–1.5% to your rate. Check your score at least 6 months before you plan to buy so you have time to improve it.

Use the 28/36 rule as a ceiling, not a target.Just because a lender will approve you for $1,700/month doesn't mean you should spend that much. Many financial advisors suggest keeping housing costs closer to 25% of gross income to leave room for savings, investing, and actually enjoying life.

Factor in your full financial picture. Are you saving for retirement? Planning to have kids? Expecting a career change? The mortgage you can afford on paper might not be the mortgage that makes sense for your life.

The bottom line: buying a home should make your life better, not squeeze it. Run the numbers honestly, build in a buffer, and you'll find the price range that lets you sleep well at night — in a home you actually own.