How Much House Can I Afford? Rules of Thumb (28/36) Explained
The Danger of "Approved"
A bank might pre-approve you for a $600,000 loan. That doesn't mean you can afford a $600,000 loan.
The bank only cares if you can pay them back without defaulting. They don't care if you can afford to travel, save for retirement, or buy groceries.
The 28/36 Rule
This is the standard metric used by lenders and financial planners to determine affordability.
1. The Front-End Ratio (28%)
Your total housing costs (PITI + HOA) should not exceed 28% of your Gross Monthly Income.
- Gross Income: $10,000/mo ($120k/year).
- Max Housing: $2,800.
2. The Back-End Ratio (36%)
Your total debt payments (Housing + Student Loans + Car Loans + Credit Cards) should not exceed 36% of your Gross Monthly Income.
- Gross Income: $10,000.
- Max Total Debt: $3,600.
- Existing Car/Student Loans: $1,000.
- Remaining for House: $2,600.
In this scenario, even though the 28% rule says you can afford $2,800, the 36% rule limits you to $2,600. Always use the lower number.
Other Rules of Thumb
The 3X Income Rule
Aim for a home price that is roughly 3 times your annual income.
- Income: $100,000.
- Home Price: $300,000. (Note: In high-interest rate environments or expensive cities, this rule is becoming harder to follow.)
The Net Pay Rule (Conservative)
Keep housing costs to 25% of your Take-Home Pay (Net Income). This is the safest route but often requires living in a lower cost-of-living area.
Why You Should Spend Less
Maxing out your budget leaves you "house poor." Homeownership comes with surprise costs:
- Broken water heaters ($1,500)
- New roof ($10,000+)
- Lawn care and maintenance
Leaving room in your budget ensures a broken appliance doesn't become a financial crisis.
Summary
Start with your income, apply the 28/36 rule, and then calculate what home price fits that monthly number using our Mortgage Payment Calculator.