How much house can I afford?
A practical US framework for the monthly payment, down payment, closing costs and hidden expenses that decide what is actually affordable.
A lender's maximum approval is not the same as a comfortable budget. The lender is estimating whether you can repay the loan. You are deciding whether you can also save, travel, repair a roof and absorb a bad month.
The useful question is not “What is the biggest mortgage I can get?” It is “What monthly housing cost leaves the rest of my life intact?”
Start with the full monthly payment
In the US, the monthly housing payment is usually more than principal and interest. Lenders often call the full package PITI:
- Principal: the part that reduces the loan balance.
- Interest: the lender's charge on the outstanding balance.
- Taxes: property tax, often collected in escrow.
- Insurance: homeowners insurance, and sometimes flood or earthquake insurance.
Add the costs that PITI may leave out:
- HOA dues. They can be small or substantial, and they can rise.
- PMI. Private mortgage insurance is often required when the down payment is below 20%. It usually ends when the loan balance reaches 78–80% of the original value, depending on the loan and lender.
- Maintenance. A common planning range is 1% of the home's value per year, but older homes and climates can demand more.
- Utilities and internet.
- Closing costs. Typically several percent of the purchase price, including lender fees, title, appraisal, recording and prepaid taxes and insurance.
A $2,500 principal-and-interest payment can become a $3,200 housing payment once taxes, insurance, HOA and maintenance are included.
The 28/36 guideline
A traditional affordability guideline compares two ratios:
- Housing ratio: housing costs divided by gross monthly income. A common ceiling is 28%.
- Total debt ratio: housing costs plus other debt payments divided by gross monthly income. A common ceiling is 36%.
On $8,000 gross monthly income:
- 28% housing = $2,240.
- 36% total debt = $2,880. If you already pay $500 toward a car and student loans, that leaves $2,380 for housing under the total-debt test — but the 28% housing cap is the tighter limit at $2,240, so $2,240 is the practical ceiling here.
These are guidelines, not laws. Lenders may allow higher ratios, especially with strong credit, reserves or a large down payment. A high ratio can still feel uncomfortable.
Down payment and PMI
A larger down payment reduces the loan, the monthly payment and sometimes the rate. It can also eliminate PMI. But cash has other jobs: emergency fund, closing costs, moving, repairs and job-loss buffer.
Do not drain every account for the down payment. A common approach is to keep three to six months of essential expenses in reserve, though the right amount depends on job stability, income variability and the age of the home.
Run the numbers at a few rates
A mortgage payment is sensitive to the interest rate. Compare the same loan at the quoted rate and at one or two percentage points higher. If the higher payment would be a strain, the budget is tight.
Also compare 15-year and 30-year terms. A 15-year loan usually has a lower rate and much less total interest, but a higher required payment. A 30-year loan costs more over time but keeps the monthly obligation lower. The mortgage calculator can show the amortization and the effect of extra payments.
What lenders look at
A pre-approval usually considers:
- income and employment history;
- credit score and report;
- existing debts and monthly obligations;
- assets and down payment;
- the property's appraised value;
- reserves after closing.
Pre-qualification is often a lighter, preliminary estimate. Pre-approval is more involved but still not a guarantee. The final approval depends on the property, the appraisal and the underwriting process.
A practical budget test
Write down your current monthly spending outside housing: food, transport, childcare, debt, insurance, savings and fun. Then see what remains.
If the proposed housing payment would force you to stop saving or rely on credit for ordinary months, it is probably too high. A house also brings one-off costs: a furnace, a roof, a plumbing leak. The emergency fund exists for those.
Try this:
- Estimate the full monthly payment, including taxes, insurance, HOA and maintenance.
- Add 10–15% for cost creep.
- Compare it with your take-home pay, not gross pay.
- Keep a reserve after closing.
- Model a rate increase and a period with less income.
Renting is not throwing money away
Renting buys flexibility and shifts some repair risk to the landlord. Buying builds equity but adds transaction costs, maintenance and concentration risk. The right answer depends on how long you will stay, local prices, rent levels, your job and your tolerance for illiquidity.
Our rent vs buy comparison goes deeper, and mortgage basics explains the loan structure. Use the home affordability calculator as a starting point, not a permission slip.