How Much House Can I Afford? The Real Answer

Last updated: June 2026

Your lender will tell you the maximum they'll lend. That's not the same as what you can afford. This guide shows you how to calculate your real budget — one that accounts for everything lenders ignore.

The Problem with "Pre-Approval"

Lenders calculate affordability based on your debt-to-income ratio (DTI), which compares your gross income to your projected mortgage payment (plus existing debts). They typically approve borrowers up to a 43% DTI. But this doesn't account for:

• Property taxes (1–2% of value per year, not included in their ratio)
• Homeowner's insurance spikes
• HOA dues
• Maintenance and emergency repairs
• The impact on your other savings goals

The 3 Budget Rules Explained

The 28/36 Rule (Conservative)

Spend no more than 28% of gross monthly income on housing, and no more than 36% on all debts combined. On $100,000/year gross income: $100,000 ÷ 12 × 28% = $2,333/month max on housing.

30% of Net Income (Practical)

Many planners recommend spending no more than 30% of your take-home pay on housing. This accounts for the fact that taxes, retirement contributions, and other deductions reduce your actual available cash.

The 35/45 Rule (Aggressive)

Allows up to 35% of gross income on housing and 45% total debt. This is the upper limit — proceed with caution at these levels.

A Simple 3-Step Calculation

1. Step 1: Calculate your max true monthly housing budget (30% of net take-home pay)
2. Step 2: Subtract estimated taxes, insurance, HOA, and maintenance (often $400–$900+/month on a $400k home)
3. Step 3: What remains = your maximum monthly principal and interest. Work backward to find the home price.

Don't Forget Cash to Close

The math above gives you a monthly budget, but you also need enough savings to close. On a $400,000 home with 10% down you'll typically need $40,000 down + $12,000–$20,000 in closing costs and prepaids = $52,000–$60,000 cash.

HomeReality Check is an educational tool. Not financial advice.