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How Much House Can You Afford?
The standard guideline is the 28/36 rule: spend no more than 28% of your gross monthly income on housing costs and no more than 36% on total debt payments. On an $80,000 annual salary, that puts your estimated maximum housing payment at approximately $1,867 per month and your total debt ceiling at approximately $2,400 per month. Those two numbers set the boundaries for what lenders will typically approve.
What the 28/36 rule means
The 28% figure is the front-end ratio. It covers only housing costs. The 36% figure is the back-end ratio, which includes housing plus all other monthly debt obligations like car loans, student loans, and credit card minimums. Both ratios use gross income (before taxes and deductions), not take-home pay.
A household earning $80,000 per year has a gross monthly income of approximately $6,667. Applying the 28/36 rule:
- 28% of $6,667 = approximately $1,867 maximum housing payment
- 36% of $6,667 = approximately $2,400 maximum total debt payments
If that household already has $500 per month in non-housing debt (a car payment and student loans, for instance), the remaining room under the 36% cap is $2,400 - $500 = $1,900 for housing. In this case, the back-end ratio is more restrictive than the front-end ratio, so the estimated housing budget would be approximately $1,867 per month, governed by the tighter of the two limits.
The home affordability calculator runs both ratios at once and translates the monthly payment into an estimated purchase price.
What counts as housing cost
Lenders do not just look at the mortgage principal and interest. The housing payment they evaluate is PITI: principal, interest, taxes, and insurance. On most loans, the breakdown looks something like this:
| Component | Typical share of payment |
|---|---|
| Principal and interest | 70-80% |
| Property taxes | 10-15% |
| Homeowner’s insurance | 3-5% |
| Private mortgage insurance (PMI) | 3-8% (if down payment is below 20%) |
| HOA fees (if applicable) | Varies widely |
All of these components count toward the 28% front-end ratio. A house with low principal-and-interest costs but high property taxes and HOA fees can push the total housing payment above the threshold just as easily as a higher purchase price would.
Worked example: $80,000 salary with 10% down
Assume a buyer earns $80,000 per year, has $400 per month in existing debt payments, plans to put 10% down, and is looking at a 30-year fixed mortgage at 6.5%.
Gross monthly income: approximately $6,667. The 28% limit gives an estimated maximum housing payment of approximately $1,867. The 36% limit gives $2,400 total, minus the $400 in existing debt, leaving $2,000 for housing. The binding constraint is the $1,867 from the front-end ratio.
From that $1,867 monthly housing budget, subtract estimated property taxes ($250/month), homeowner’s insurance ($125/month), and PMI ($100/month for a 10% down payment). That leaves approximately $1,392 for mortgage principal and interest.
Working backward from the mortgage calculator formula, a monthly payment of $1,392 at 6.5% for 30 years supports an estimated loan amount of approximately $220,000. With 10% down, the buyer is putting up about $24,400 and financing $220,000, giving an estimated purchase price of approximately $244,000.
If the same buyer increases the down payment to 20%, PMI goes away (saving $100/month), and the lower loan-to-value ratio might secure a slightly better rate. At 6.25% with $1,492 going to principal and interest, the estimated loan amount rises to approximately $243,000, and the estimated purchase price becomes approximately $304,000. The larger down payment shifts affordability significantly.
DTI thresholds lenders actually use
The 28/36 rule is a guideline, not a law. Different loan programs have different limits, and individual lenders exercise discretion based on credit score, reserves, and other risk factors.
| Loan type | Typical front-end limit | Typical back-end limit |
|---|---|---|
| Conventional | 28% | 36-45% |
| FHA | 31% | 43-50% |
| VA | No fixed front-end | 41% (flexible) |
| USDA | 29% | 41% |
FHA loans are more lenient, which is why they are popular with first-time buyers. A borrower who does not qualify under conventional guidelines at 36% might qualify under FHA at 43%. The trade-off is that FHA loans require mortgage insurance for the life of the loan (unless refinanced), which adds to the monthly cost.
VA loans have no fixed front-end ratio at all. Instead, they evaluate “residual income,” which is the money left over after all major expenses. This approach is sometimes more generous than a strict percentage-based test. The debt-to-income calculator can help you see where your current obligations land relative to these thresholds before you start shopping.
How down payment changes the math
A larger down payment affects affordability in three ways. First, it reduces the loan amount, which lowers the monthly principal and interest. Second, reaching 20% down eliminates PMI, freeing up more of the monthly budget for principal and interest. Third, a lower loan-to-value ratio often qualifies the borrower for a lower interest rate, which further reduces the payment.
The effect compounds. Going from 5% down to 20% down on a $300,000 house means borrowing $240,000 instead of $285,000. That $45,000 difference in loan amount, combined with the elimination of PMI and a potentially lower rate, can reduce the estimated monthly payment by $400 to $500.
The constraint, of course, is that saving a larger down payment takes time, and home prices may rise during that period. There is no formula that resolves that trade-off. It depends on local market conditions, savings rate, and how long the buyer is willing to wait.
Factors the formula does not capture
The 28/36 rule tells you what a lender is likely to approve. It does not tell you what is comfortable. A household that qualifies for a $1,867 housing payment may find that number uncomfortably tight once utilities, maintenance, commuting costs, and childcare are factored in. Lenders do not account for those expenses in their ratios.
Maintenance alone is often estimated at 1% of the home’s value per year. On a $300,000 home, that is $3,000 annually or $250 per month. Older homes and homes with large yards tend to cost more. None of this appears in PITI, but it is a real monthly obligation that affects how much house actually fits a budget.
Commuting costs can also shift the calculus. A less expensive home 45 minutes from work might look better on paper, but the added fuel, tolls, and vehicle wear can easily add $300 to $500 per month in real costs. A more expensive home closer to work might be a wash or even cheaper in total monthly spending.
The most reliable approach is to work backward from actual cash flow rather than relying solely on lender ratios. Start with take-home pay, subtract all non-housing expenses (food, transportation, insurance, savings, childcare, discretionary), and what remains is the realistic housing budget. If that number is lower than the 28% guideline, the lower number is the one that matters for daily life. The lender’s number determines what you can borrow; your own budget determines what you can comfortably carry.