How Much House Can You Actually Afford?

Start shopping for a home, and the first thing a lender will do is give you a number. It sounds authoritative, as if it's both the amount the bank will lend and the amount you should spend. Those are two very different numbers, and the first is usually significantly higher than the second. People who never make the distinction are how the term "house-poor" got invented: technically able to buy the home, but with no room left for anything else in life.

Why the lender's number is not your budget

The lender calculates your number from gross income and existing debts, period. They don't factor in your retirement savings, your goals, or how secure you feel in your job. Their number is the maximum they're willing to lend at this moment, which is not the same thing as the amount you can comfortably carry.

Bear in mind that a house is a decades-long commitment, and the last thing you want is the largest home you're eligible for. What you want is a comfortable home that leaves room for a balanced life around it.

A starting guideline: the 28/36 rule

A good rule of thumb: housing costs should be no more than 28% of gross monthly income, and total monthly debt payments, meaning housing plus car loans, student loans, and credit card payments, should stay under 36%. Here's what that looks like across incomes:

Gross annual income	Monthly gross	Max housing (28%)	Max total debt payments (36%)
$60,000	$5,000	$1,400	$1,800
$85,000	$7,083	$1,983	$2,550
$120,000	$10,000	$2,800	$3,600
$160,000	$13,333	$3,733	$4,800

Note that the 36% number covers all of your debt payments, not just the mortgage. A car note or student loan comes out of the same bucket, which directly shrinks how much house fits. Treat these percentages as guidelines rather than laws, and know that plenty of people deliberately budget below them. Very few people regret having a monthly payment that turned out to be easy.

Housing costs include more than the mortgage

This is where first-time buyers often learn the hard way that the mortgage payment is only the beginning. On top of principal and interest, there are property taxes (which tend to rise over time), homeowners insurance, private mortgage insurance if you put less than 20% down, HOA dues for condos and some neighborhoods, maintenance (a good rule of thumb is 1% of the home's value per year), and utilities, which usually run higher in a house than in an apartment. Any of these can push your true housing cost well past what the mortgage alone suggests. Use our mortgage calculator with taxes and insurance included to get a realistic monthly figure instead of just the loan payment.

Don't empty your accounts to buy

One of the worst moves in a home purchase is draining every available dollar into the down payment, or into paying off debts purely to qualify for a bigger loan. Things break, especially right after you move in, and you want reserves when they do. Keep an emergency fund intact when deciding how much to put down.

Remember also that closing costs will take roughly 2-5% of the loan amount on top of your down payment, so budget for both. Our down payment guide covers how to build that cash without wrecking the rest of your finances.

Finding your number

One reliable way to find your own limit is to start from monthly take-home pay. Subtract retirement savings, debt payments, and the rest of your actual life, then decide what portion of the remainder you'd be comfortable spending on total housing costs. Work backward from that number, with taxes, insurance, and maintenance included, when you shop. Get pre-approved, because it makes you a more attractive buyer. Just remember that pre-approval measures the bank's risk tolerance, not your budget, and your own limit should sit comfortably below it.

Buying a home you can really afford, instead of stretching for the nicest one your lender allows, is the difference between a home that supports your life and a home that consumes it.

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This article is for general educational purposes only and does not constitute personal financial, investment, tax, or legal advice. Consult a qualified financial professional before making major financial decisions. See our Disclaimer.