How Much House Can I Afford?

One of the most important questions when buying a home is: how much can I realistically afford? The answer isn't just about what the bank approves—it's about what fits comfortably in your budget without sacrificing your other financial goals.

The 28/36 Rule

Lenders use two key ratios to determine how much they'll lend you:

Calculate Your Numbers

Let's walk through a real example:

• Gross annual income: $85,000 ($7,083/month)
• Other monthly debts: $400 (car payment + student loans)
• Max housing payment: $7,083 × 0.28 = $1,983
• Max total debt: $7,083 × 0.36 = $2,550
• Available for housing: $2,550 - $400 = $2,150

In this example, the maximum comfortable housing payment is $1,983 based on the front-end ratio.

Factors Beyond the Ratios

While lenders care about these ratios, you should also consider:

• Down payment size: More down = lower monthly payment + no PMI
• Interest rate: A 1% difference on a $300,000 loan = $200/month
• Property taxes: Vary dramatically by location (0.5% to 2.5% annually)
• HOA fees: Can add $200-$500/month to your costs
• Maintenance: Budget 1-2% of home value annually
• Utilities: Larger home = higher heating, cooling, and water bills

The "Affordable" vs. "Approved" Gap

Banks will often approve you for more than you should realistically spend. Just because you can borrow $400,000 doesn't mean you should. Leave room in your budget for:

• Emergency repairs
• Retirement savings (don't stop saving for a house!)
• Family goals (kids, vacations)
• Career transitions
• Healthcare costs

Key Takeaways

1. Use the 28/36 rule as a starting point: housing should be under 28% of gross income
2. Factor in all costs: taxes, insurance, HOA, maintenance
3. Don't max out your approval—leave buffer for unexpected expenses
4. Consider your long-term plans: a 30-year commitment requires long-term thinking