How Much House Can I Afford? (Don't Worry, It's Not as Complicated as It Sounds)
A friend of mine, let's call him Dave, called me last year, stressed out. He and his wife had been scrolling through Zillow for weeks, saving listings of beautiful homes. But every time they found one they loved, the same anxiety popped up: “Are we even looking at houses we can actually afford, or are we just wasting our time?”
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Table of Contents
1. Dave's Story (and Probably Yours Too)
Dave isn't alone. Almost every first-time buyer hits this wall. You know you want to buy. You might even have a ballpark idea of what homes cost in your area. But translating “I make $85,000 a year”into “I can comfortably buy a $320,000 house” feels like a magic trick that only mortgage brokers know.
The problem is that house prices and monthly payments don't move in a straight line. A $350,000 house in one state could cost you several hundred dollars more per month than the same-priced house in another state — all because of property taxes, insurance, and local rates. And if you're putting down less than 20%, PMI adds another layer of cost that most online calculators won't even show you.
It's not magic. It's just a few simple ratios. Let's walk through them step by step.
2. The Rule Lenders Actually Use: Debt-to-Income (DTI)
When a bank looks at your application, they're not looking at your total salary in isolation. They're looking at your DTI: your debt-to-income ratio. That's the percentage of your gross monthly income that goes toward paying debts.
The DTI Formula
DTI = Total Monthly Debt Payments / Gross Monthly Income x 100Example: $1,500 in debts / $5,000 monthly income = 30% DTI
For most conventional loans, lenders want your total DTI — including the new mortgage — to stay under 36%. Some government-backed programs (FHA, VA) go up to 43% or even 50%, but 36% is the sweet spot where you get the best rates.
| DTI Range | Status | What It Means |
|---|---|---|
| ≤ 36% | Ideal Range | Best rates and terms |
| 37%–43% | Acceptable | May still qualify |
| ≥ 44% | Hard to Qualify | Limited loan options |
Important: DTI has two parts
Front-end DTI (28%): Just your housing costs — mortgage payment, taxes, insurance.
Back-end DTI (36%): Everything — housing plus car loans, student loans, credit cards, child support, etc.
Both matter. But the back-end is often the one that limits you.
3. Step 1: Figure Out Your Gross Monthly Income
Take your annual salary and divide by 12. If you make $85,000 a year, that's roughly $7,083 per month before taxes.
Don't use your take-home pay. Lenders use gross income. I know it feels weird to budget based on money you haven't paid taxes on yet, but that's how the system works.
Quick Reference: Monthly Gross by Annual Salary
| Annual Salary | Monthly Gross | 28% Housing Max |
|---|---|---|
| $50,000 | $4,167 | $1,167 |
| $85,000 | $7,083 | $1,983 |
| $120,000 | $10,000 | $2,800 |
| $175,000 | $14,583 | $4,083 |
4. Step 2: The 28% Rule for Housing Alone
Most financial advisors will tell you: keep your total housing payment — principal, interest, taxes, and insurance, the famous PITI — under 28% of your gross monthly income.
Dave's 28% Calculation
$7,083 (monthly gross)×0.28=$1,983Maximum monthly payment a lender would typically approve
The #1 Mistake First-Time Buyers Make
They fixate on the purchase price and ignore what the monthly cost will actually be. A $400,000 house with a 20% down payment costs very different per month than a $400,000 house with 5% down — even though the price tag is the same. The first avoids PMI and has a smaller loan; the second has PMI plus a larger loan amount.
5. Step 3: Work Backwards to a Home Price
Now we need to translate that monthly payment ceiling into an actual home price. This is where a calculator stops being optional and becomes essential, because the math depends on your down payment, interest rate, property taxes, and insurance.
Let's run Dave's real numbers. He and his wife have $30,000 saved for a down payment, and their credit is good enough for a 6.5% interest rate. They live in Texas, where property taxes are on the higher side.
Dave's Affordability Profile
When you run those numbers through our calculator, the maximum home price is:
$310,000
That keeps their monthly PITI payment under $1,983
The PMI Trap
Their $30,000 down payment is only about 9.7% of that $310,000 price. That means they'll be paying PMI — private mortgage insurance — which adds $100–$300/month to their cost. Check out our PMI Guide for more.
Try this in the calculator
Open our Mortgage Calculator, set Home Price = $310,000, Down Payment = $30,000. Then try sliding the down payment to $62,000 (20%). Watch PMI disappear from the payment breakdown — that's $133/month back in your pocket, or $1,596/year.
6. Step 4: Don't Forget the Total DTI (36% Rule)
The 28% rule covers housing. But lenders also look at your total DTI — all your debts combined, including housing, should ideally stay under 36%.
Dave's Total DTI: The Limiting Factor
Dave and his wife pay $450 a month on student loans and $300 on a car loan — that's $750 in existing debt. Subtract that from $2,550 (the 36% ceiling), and they're left with $1,800 for the mortgage — less than the $1,983 the 28% rule allowed.
This changes everything
In Dave's case, existing debt, not the housing ratio, becomes the limiting factor. That $450 student loan and $300 car payment reduce his max home price by roughly $40,000.
Our calculator handles this automatically
In the Mortgage Calculator, you can add your monthly debt payments and it will automatically calculate both your front-end and back-end DTI limits.
7. Real Numbers, Real Scenarios
Here's how affordability changes at different income levels. These assume a 6.5% rate,10% down, and national average property taxes.
| Annual Income | 28% Housing Max | Approx. Max Home Price | Est. Monthly Payment |
|---|---|---|---|
| $50,000 | $1,167 | ~$175,000 | $1,133 |
| $85,000 | $1,983 | ~$310,000 | $1,983 |
| $120,000 | $2,800 | ~$440,000 | $2,800 |
| $150,000 | $3,500 | ~$550,000 | $3,500 |
| $175,000 | $4,083 | ~$650,000 | $4,083 |
8. Things That Mess Up the Math
A few things can throw off these numbers, sometimes by a lot. Here are the most common surprises that first-time buyers don't see coming:
Student Loans
If you're on an income-driven repayment (IDR) plan, lenders used to calculate your payment as 1% of your loan balance. That rule changed in 2023. Now, for most conventional loans, lenders use your actual monthly payment.
Example: $40,000 student loan balance on IDR paying $0/month. Under the old rule, lenders assumed $400/month (1%). Now they use $0. That's an extra $400/month in buying power.
Property Taxes (The Hidden Bombshell)
Property taxes vary wildly by state. This is the single biggest variable most generic online calculators get wrong.
| Location | Tax Rate | Monthly Tax on $400k Home |
|---|---|---|
| Alabama | 0.40% | $133 |
| California | 0.76% | $253 |
| Texas | 1.80% | $600 |
| New Jersey | 2.40% | $800 |
PMI (Private Mortgage Insurance)
If you put down less than 20%, PMI adds $100–$400/month to your payment. On a $310,000 home with 10% down, PMI adds roughly $133/month — money that goes nowhere near your equity. Read our PMI Guide.
9. The Question Most People Skip
Here's the thing the 28% rule doesn't answer: what do you actually want your monthly payment to be?
Banks tell you the maximum they'll lend. They don't tell you what's comfortable for your life.
Questions to Ask Yourself
- →Do you like to travel? A lower payment might mean an extra vacation each year.
- →Are you planning to have kids soon? Childcare costs can easily run $1,500+/month.
- →Do you sleep better with a smaller payment? Peace of mind has real value.
- →Are you investing for retirement? The more house you buy, the less you can save.
Dave's Smart Move
Dave and his wife ended up buying at $285,000 — well under their $310,000 maximum. That $25,000 gap meant $185 less per month and breathing room in their budget.
The 25% Rule of Thumb
Of course, the 28% number is a ceiling, not a target. Some financial independence advocates go even further, recommending you keep housing to 25%of your gross income. At $85,000/year, that's $1,479/monthinstead of $1,983. That extra $504/month invested in the S&P 500 over 30 years could grow to over $1 million.
📊 From Our Calculator: What Different Incomes Afford
These numbers are computed using MortgagePro's affordability formula — the same 28/36 DTI rules lenders use. See exactly what your income level buys:
| Annual Income | Max Monthly Payment | Est. Home Price | vs. $100K Income |
|---|---|---|---|
| $75,000 | $1,750 | ~$250,000 | — |
| $100,000 | $2,333 | ~$350,000 | — |
| $136,000 | $3,178 | ~$500,000 | +$150K house |
| $175,000 | $4,083 | ~$630,000 | +$280K house |
| $250,000 | $5,833 | ~$900,000 | +$550K house |
Assumptions: 20% down payment, 6.5% APR, 30-year fixed. Property taxes at 1% (~$417/mo per $500K), homeowners insurance at national average (~$142/mo). Uses the 28% front-end DTI rule.
Source: MortgagePro Affordability Calculator — get your personalized number.
10. Try It With Your Own Numbers
You don't need to do this math by hand. Our Affordability Calculatordoes exactly what I just walked through, in real time with your actual numbers.
1. Enter Your Income
Your annual gross income. The calculator does the monthly math automatically.
2. Add Your Debts
Student loans, car payments, credit cards are all factored into your DTI.
3. Pick Your State
Automatically applies your state's property tax rate for accurate estimates.
Ready to find your number?
Open our interactive affordability calculator. No sign-up required, completely free.
Open Affordability CalculatorAll Mortgage Calculators
10 free tools — find the one that fits your situation.
Written by Chong Song · Last updated:
Data sources: CFPB, HUD, FHA, FHFA, IRS and Federal Reserve published data. See our calculator methodology and editorial policy for how these figures are compiled, reviewed and corrected.
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