How much house can I afford?
Most lenders start with the 28/36 rule: your total monthly housing payment (principal, interest, property taxes, homeowners insurance, plus any mortgage insurance and HOA dues) should be no more than 28% of your gross monthly income, and all your monthly debt payments together should be no more than 36%. On a $100,000 salary with $400 a month of other debt, that caps housing at $2,333 a month, which buys a home of roughly $313,000 with 10% down at an example 6.5% rate.
That figure is a lender’s ceiling, not a target. Below we build it step by step, show the costs people forget, and work through how a car payment, the interest rate and your down payment change the answer. Keep the mortgage calculator open to try your own numbers as you read.
The 28/36 rule in two steps
Both ratios use gross monthly income: your annual pay before taxes and deductions, divided by 12. If you are paid by the hour, the salary calculator converts hourly pay to an annual figure.
Step 1: the front-end (housing) ratio
The CFPB describes 28% of pre-tax income as a common rule of thumb for total monthly housing costs:
Maximum housing payment = gross monthly income × 0.28
Step 2: the back-end ratio (debt-to-income)
Your debt-to-income ratio (DTI) adds the new housing payment to every other monthly debt payment (car loans, student loans, credit card minimums, personal loans) and divides by gross monthly income. Everyday bills such as utilities, phone and groceries are not counted, even though you still have to pay them.
Maximum housing payment = gross monthly income × 0.36 − other monthly debt payments
The lower number wins
Your housing budget is the smaller of the two results. With little other debt, the 28% limit usually binds; add a car payment or student loans and the 36% limit takes over, as the second example shows.
How strict is it?
The 28/36 rule is a guideline, not a law, and actual limits depend on the loan program. Fannie Mae’s Selling Guide caps total DTI at 36% for manually underwritten loans, allows up to 45% for borrowers who meet credit score and reserve requirements, and allows up to 50% for loans assessed by its Desktop Underwriter system. You may also have heard of a 43% limit: that was the DTI cap in the CFPB’s original Qualified Mortgage rule, which a December 2020 rule replaced with a test based on the loan’s pricing, mandatory from October 1, 2022. Being approved for more is not the same as being comfortable with more.
What goes into the monthly housing payment
Lenders look at the whole payment, often summarized as PITI (principal, interest, taxes and insurance), plus mortgage insurance and HOA dues where they apply.
- Principal and interest (P&I). The loan payment itself, fixed for the life of a fixed-rate mortgage: M = P × r(1 + r)n ÷ ((1 + r)n − 1), where r is the annual rate ÷ 12 and n is the number of monthly payments.
- Property taxes. Set by your county, city and school district, and they vary widely. Check the local rate or the listing’s tax history. Our examples use 1% of the price per year purely as an illustration.
- Homeowners insurance. Lenders require it. Get a quote for the actual house; our examples assume $1,800 a year.
- Escrow. Lenders usually collect taxes and insurance with each payment in an escrow (or impound) account and pay the bills for you. If your taxes or premiums go up, your monthly payment goes up, even on a fixed-rate loan.
- Mortgage insurance. With a conventional loan and less than 20% down you will usually pay private mortgage insurance (PMI), which protects the lender, not you. Freddie Mac estimates roughly $30 to $70 a month for every $100,000 borrowed, depending on your credit score and down payment; our examples use $50. FHA loans charge their own mortgage insurance, with an upfront premium and a monthly premium, whatever your down payment.
- HOA dues. Common for condos and many subdivisions, and lenders count them.
The mortgage calculator covers P&I, property tax, insurance and HOA dues and shows every step of the working. It does not estimate PMI, so add your PMI quote in the HOA box to see the full payment.
Worked example 1: a $100,000 salary with $400 of other debt
Assumptions (illustrative, not current rates): 30-year fixed at 6.5%, 10% down, property tax 1% of the price a year, insurance $1,800 a year, PMI $50 a month per $100,000 borrowed.
- Gross monthly income: $100,000 ÷ 12 = $8,333.33
- Front-end limit: $8,333.33 × 0.28 = $2,333.33
- Back-end limit: $8,333.33 × 0.36 = $3,000.00, minus $400 of other debt = $2,600.00
- The lower limit is $2,333.33, so that is the housing budget.
- Everything except insurance scales with the price, so you can solve for the price whose full payment equals $2,333.33. It comes to about $313,000.
Checking a round $310,000 in the calculator:
| Item | Amount |
|---|---|
| Down payment (10%) | $31,000.00 |
| Loan amount | $279,000.00 |
| Principal and interest | $1,763.47 |
| Property tax ($3,100 a year ÷ 12) | $258.33 |
| Homeowners insurance ($1,800 ÷ 12) | $150.00 |
| PMI (estimate) | $139.50 |
| Total housing payment | $2,311.30 |
Front-end ratio: $2,311.30 ÷ $8,333.33 = 27.74%. Back-end ratio: ($2,311.30 + $400) ÷ $8,333.33 = 32.54%. Both pass. Note that over 30 years the interest on this $279,000 loan adds up to $355,849.12, more than the amount borrowed. Our compound interest guide explains why time does so much of the work.
Worked example 2: the same buyer with a $500 car payment
Add a $500 car payment and other debts rise to $900 a month. The back-end limit becomes $3,000 − $900 = $2,100, which is now lower than the $2,333.33 front-end limit, so it sets the budget. The maximum price drops to about $279,700: one car payment costs this buyer roughly $33,500 of house.
At $279,000 the payment is $1,587.12 P&I + $232.50 tax + $150.00 insurance + $125.55 PMI = $2,095.17, for a back-end ratio of ($2,095.17 + $900) ÷ $8,333.33 = 35.94%. If you are shopping for a car and a house in the same year, read 72-month vs 60-month car loans first, and size the car payment with the auto loan calculator.
How the interest rate and your income change the answer
The table uses the same illustrative assumptions and assumes other debts are low enough that the 28% limit binds. Prices are rounded down to the nearest $1,000.
| Annual income | 28% housing budget | At 5.5% | At 6.5% | At 7.5% |
|---|---|---|---|---|
| $60,000 | $1,400.00 | $195,000 | $179,000 | $164,000 |
| $80,000 | $1,866.67 | $268,000 | $246,000 | $226,000 |
| $100,000 | $2,333.33 | $341,000 | $313,000 | $288,000 |
| $125,000 | $2,916.67 | $432,000 | $396,000 | $365,000 |
| $150,000 | $3,500.00 | $523,000 | $480,000 | $442,000 |
Each 1-point rise in the rate cuts buying power by about 8% here (from $313,000 to $288,000 at a $100,000 income). When you compare lenders, look at the APR as well as the rate: the CFPB explains that the APR also reflects points, broker fees and other charges, so it is usually higher than the interest rate.
Worked example 3: 20%, 10%, 5% or 3% down
Putting 20% down avoids PMI on a conventional loan. You can put down much less: Fannie Mae’s HomeReady mortgage allows down payments as low as 3% for eligible borrowers, and FHA loans require a minimum of 3.5%. Here is a $350,000 home at an example 6.5% for 30 years, with $291.67 a month of property tax and $150 of insurance:
| Down payment | Loan | P&I | PMI (est.) | Total monthly | Interest over 30 years |
|---|---|---|---|---|---|
| 20% ($70,000) | $280,000 | $1,769.79 | $0.00 | $2,211.46 | $357,124.57 |
| 10% ($35,000) | $315,000 | $1,991.01 | $157.50 | $2,590.18 | $401,765.14 |
| 5% ($17,500) | $332,500 | $2,101.63 | $166.25 | $2,709.54 | $424,085.42 |
| 3% ($10,500) | $339,500 | $2,145.87 | $169.75 | $2,757.29 | $433,013.54 |
Dropping from 20% to 5% down adds $498.08 to the monthly payment and $66,960.85 of interest over the full term. That trade-off can still make sense if waiting to save 20% would take years, but it is worth seeing in dollars.
PMI does not last forever
Under the Homeowners Protection Act you can ask your servicer to cancel PMI once your balance is scheduled to reach 80% of the home’s original value (generally the lower of the price and the appraisal), or sooner if extra payments get you there, and it ends automatically at 78%, subject to conditions such as being current on your payments. On the 10%-down loan above, regular payments reach 80% at payment 95 (about 7 years 11 months) and 78% at payment 109. With 5% down it takes 124 and 135 payments. FHA mortgage insurance follows different rules.
What the 28/36 rule leaves out
- Take-home pay. The rule uses gross income, but you pay bills from net income. The $2,311.30 payment in example 1 is 37.28% of an illustrative $6,200 monthly take-home.
- Cash to close. You need the down payment plus closing costs, and lenders may want to see reserves left over.
- Upkeep. Repairs, maintenance, utilities and a longer commute are real costs that no lender ratio includes.
- Rising escrow costs. Property taxes and insurance can rise every year. Try your budget with a higher insurance quote as well as a higher rate.
These rules describe how lenders size a loan; they cannot tell you what is comfortable for your household. Treat this guide as education, not financial advice, and check your plan with a lender or a HUD-approved housing counselor.
A quick checklist before you shop
- Work out gross monthly income × 0.28, and × 0.36 minus your other debts. Your budget is the lower figure.
- Collect real local numbers: property tax rate, an insurance quote, HOA dues and a PMI estimate.
- Run a few prices through the mortgage calculator and add PMI.
- Stress-test: add a point to the rate and 20% to insurance. Use the percentage calculator for quick checks.
- Compare the payment to your take-home pay, not just your gross.
- Get Loan Estimates from several lenders and compare both the rate and the APR.
Frequently asked questions
Is the 28/36 rule based on gross or take-home pay?
Gross pay: your income before taxes and deductions, divided by 12. That is how lenders calculate debt-to-income, and it is why a payment that fits the rule can still feel tight on your take-home pay. In our first worked example the payment is 27.74% of gross income but about 37% of an illustrative $6,200 monthly take-home.
How much house can I afford on $75,000 a year?
Under the 28% rule, $75,000 ÷ 12 × 0.28 = $1,750 a month for all housing costs. With the same illustrative assumptions as our worked examples (6.5% 30-year fixed, 10% down, 1% property tax, $1,800 a year insurance, estimated PMI) that supports a home of roughly $229,000, less if car or student loan payments push you past 36%. Try your own figures in the mortgage calculator.
What debt-to-income ratio do lenders actually allow?
It depends on the loan program. Fannie Mae’s Selling Guide sets a 36% maximum for manually underwritten loans, up to 45% with stronger credit scores and reserves, and up to 50% for loans assessed by its Desktop Underwriter system. The 43% figure you may have seen came from the CFPB’s original Qualified Mortgage rule; it was replaced by a price-based test from October 1, 2022.
Does the 28% include property taxes and insurance?
Yes. The housing payment in the 28% test is the full monthly cost: principal and interest, property taxes, homeowners insurance, and any mortgage insurance and HOA dues. Leaving taxes and insurance out is the most common way people overestimate what they can afford.
When can I stop paying PMI?
On a conventional loan you can ask your servicer to cancel private mortgage insurance once your balance is scheduled to reach (or you have paid it down to) 80% of the home’s original value, and it ends automatically when the balance is scheduled to hit 78%, subject to conditions such as being current on payments. FHA mortgage insurance follows different rules.
Sources
- CFPB — What is a debt-to-income ratio?
- CFPB — Buying a house: monthly payment worksheet (28% rule of thumb)
- Fannie Mae Selling Guide B3-6-02 — Debt-to-Income Ratios
- CFPB — General QM Loan Definition final rule (price-based test replacing the 43% DTI limit)
- CFPB — What is an escrow or impound account?
- CFPB — What is private mortgage insurance?
- CFPB — When can I remove private mortgage insurance (PMI) from my loan?
- CFPB — What is mortgage insurance and how does it work? (FHA mortgage insurance)
- Freddie Mac — Breaking down PMI
- Fannie Mae — HomeReady mortgage (down payments as low as 3%)
- HUD — What is the minimum down payment requirement for FHA?
- CFPB — What is the difference between a mortgage interest rate and an APR?