How Much House Can You Afford?
A common shortcut: a home priced around 3 to 5 times your gross annual income, with 20% down. Lenders are more precise — they use the 28/36 rule, and this guide shows you exactly how it works.
Key takeaways
- Lenders use the 28/36 rule: at most 28% of gross monthly income on housing (PITI), and 36% on all debts combined.
- Quick shortcut: a home priced at 3–5× your gross annual income, with 20% down.
- Housing cost (PITI) = principal + interest + property tax + homeowner's insurance.
- Worked example: on a $120,000 salary, 28% caps housing at about $2,800/month.
The 28/36 rule, explained
Mortgage lenders evaluate two ratios from your gross monthly income (before taxes):
Back-end ratio ≤ 36% — housing cost plus all other monthly debt payments (car loans, student loans, credit card minimums).
Conventional loans sometimes stretch to 36/45, and FHA loans allow up to 31/43 — but 28/36 remains the benchmark for a payment you can comfortably sustain.
What counts as "housing cost"?
Lenders don't look at principal and interest alone. The full figure is PITI, plus extras:
- Principal & interest — the mortgage payment itself
- Property taxes — often 0.8–2% of home value per year, varying widely by state
- Homeowner's insurance — typically $100–$250/month
- HOA dues — if applicable, sometimes several hundred dollars
- PMI — private mortgage insurance if your down payment is under 20%, usually 0.3–1.5% of the loan per year
On a $400,000 home, taxes and insurance alone can add $400–$700/month on top of principal and interest. This is why affordability calculators that ignore them mislead.
Worked example: $120,000 salary
| Step | Math | Result |
|---|---|---|
| Gross monthly income | $120,000 ÷ 12 | $10,000 |
| Max housing cost (28%) | $10,000 × 0.28 | $2,800/mo |
| Minus taxes + insurance + HOA | estimate | −$550/mo |
| Available for P&I | $2,250/mo | |
| Loan this supports (6.5%, 30-yr) | $2,250 ÷ 6.32 per $1,000 | ≈ $356,000 |
| Home price with 20% down | $356,000 ÷ 0.8 | ≈ $445,000 |
That's about 3.7× gross income — squarely in the 3–5× shortcut range.
What the rule misses
- It uses gross income. After taxes, that $2,800 might be 35%+ of take-home pay. Run the numbers on net income too.
- Maintenance isn't included. Budget roughly 1–2% of the home's value per year for upkeep.
- Your other goals matter. The rule doesn't know you're also saving for retirement or carrying student debt — the back-end ratio only partly captures this.
- Rates change the math. At 4% interest, the same payment buys far more house than at 8%. Rules of thumb assume typical rates.
Run your own numbers
Plug in your income, debts, rate, taxes, and down payment to see your affordable price range.
Open the Mortgage CalculatorFrequently asked questions
What is the 28/36 rule?
Spend no more than 28% of gross monthly income on housing and no more than 36% on all debts combined. It's the standard lender guideline for sustainable mortgage payments.
What counts as housing cost in the 28% rule?
PITI — principal, interest, property taxes, homeowner's insurance — plus HOA dues and PMI when applicable.
How much house can I afford on $100,000 salary?
Roughly a $440,000–$470,000 home with 20% down at typical rates, assuming average taxes and insurance and no other major debts. Your local tax rates move this noticeably.
Is the 3x income rule accurate?
It's a decent shortcut near typical interest rates, but it breaks down when rates are very high or low. The 28/36 calculation is more reliable.
Does the 28/36 rule use gross or net income?
Gross. For a more conservative budget, many buyers redo the math on take-home pay.
Educational content, not financial advice. Tax rates, insurance costs, and lending standards vary — confirm details with a qualified professional before making decisions.