How much house can I afford (the 28/36 rule)
Updated on August 2, 2026 · by Rafael Rossi
"How much house can I afford" has two answers, and they rarely coincide: what a lender will approve and what fits your actual budget. The first is a calculation the bank runs; the second is one only you can run.
The lender's limit: the 28/36 rule
US underwriting generally caps housing costs at 28% of gross monthly income and total debt payments at 36%. On a $100,000 salary — $8,333 a month — that is $2,333 for housing, including principal, interest, taxes and insurance.
From that limit you work backwards to a loan amount. At $2,333 a month over 30 years:
| Rate | Loan amount | Home price with 20% down |
|---|---|---|
| 6% APR | $389,200 | $486,400 |
| 7% APR | $350,700 | $438,400 |
Note what the rate does: one percentage point removes $38,400 of borrowing power at exactly the same payment. That is why shopping several lenders is worth more than saving for several additional months of down payment.
The costs that are not in the listing
The purchase price is not the cost of buying. Add, up front:
- Closing costs: typically 2% to 5% of the loan — origination, appraisal, title insurance, recording fees, prepaid escrow.
- Inspection: a few hundred dollars, and the cheapest money in the whole transaction.
Add, monthly, what people forget when comparing against rent: property tax, homeowners insurance, PMI if the down payment is under 20%, HOA dues and maintenance. A common planning figure for maintenance is 1% of the home's value per year — on a $450,000 house, $375 a month that no lender includes in the qualification.
The limit that matters more: yours
The 28% protects the lender. It does not ask whether you have childcare, an expensive health plan, a car loan or unstable income.
The honest check is different, and simple: for three months, deposit into a separate account the difference between your current rent and the intended payment, plus the new monthly costs.
If you can live that way for three consecutive months without reaching for a credit card, the budget holds. If you cannot, the lender will still approve you — and the squeeze will last thirty years. At the end of the test you have two things: the answer, and a piece of the down payment.
Bigger down payment or shorter term?
With cash available, both reduce interest, in different ways:
- A larger down payment lowers the loan and the payment, eliminates PMI at 20%, and reduces the risk of owing more than the house if the market falls. It preserves monthly flexibility.
- A shorter term cuts far more total interest but raises the payment — and a high payment is a rigid commitment lasting decades.
For most people the safer route is taking the 30-year term and paying extra principal voluntarily. You get the low payment as your obligatory floor and the extra payment as an option — the reverse is not true.
The problem with thinking in percentages
The 28% works badly at both ends of the income distribution, for opposite reasons.
On a $40,000 salary, 28% is $933 and leaves $2,400 for everything else — groceries, transport, health care, childcare. It is tight enough that any surprise becomes debt. On a $400,000 salary, 28% is $9,333 and leaves $24,000: committing 28% there is nowhere near risky.
The more honest approach is residual income: instead of asking what fraction of income housing consumes, ask how much is left after it, in dollars, and whether that covers your life with room for the unexpected. It is how more careful underwriters assess borrowers — the VA loan program uses residual income explicitly — and it is the calculation that avoids the mortgage that is technically approved and practically unsustainable.
Frequently asked questions
Is renting or buying better? It depends on how long you stay. Closing costs (2–5%) and selling costs (around 6% in commission) only amortise over long horizons. Under five years in the same home, renting usually wins comfortably.
How much should I put down? Twenty percent avoids PMI, but it is not a rule. Putting less down and keeping a solid emergency fund is often the safer position — being house-rich and cash-poor is how a repair becomes a credit card balance.
Should I wait for rates to fall? Waiting has a cost: rent paid meanwhile and any price appreciation. But buying at a high rate commits three decades. A common route is to buy when the budget supports it and refinance if rates drop — generally worth evaluating from about one percentage point of difference, once closing costs are recovered within your expected stay.
Does the 28/36 rule include the down payment savings? No, and that is a gap worth closing yourself. A payment that qualifies while leaving nothing to save is technically affordable and practically fragile.
Disclaimer: informational content. Lending conditions vary by institution, income and credit profile — run official pre-approval numbers before deciding.