How Much House Can You Afford?
Lenders will usually approve you for more than you should spend. Here is how to work out a number that fits your actual life, not just an underwriting formula.
Fact-checked and reviewed for financial accuracy by Priya Kannan, CFP®. Read our content review process.
There are two answers to this question and they are rarely the same number. The first is what a lender will approve, which is a calculation based on your income, your debts, and the loan program. The second is what you can pay every month for the next decade without resenting your house. This article walks through both, in that order, because you need the first to shop and the second to sleep.
Start with the payment, not the price
Buyers usually start with a price — "we're looking at $450,000" — but price is an output. The input is the monthly payment, and the payment has five parts that people frequently forget four of: principal, interest, property taxes, homeowners insurance, and, if you put down less than 20 percent, mortgage insurance. Add HOA dues if the property has them.
The gap matters. On a $400,000 home with 10 percent down at 6.5 percent, principal and interest run about $2,275 a month. Add a 1.1 percent property tax rate, $1,800 a year of insurance, and PMI, and the real payment lands closer to $3,000. Shopping on the $2,275 number will put you in houses you cannot actually carry.
The two ratios lenders actually use
Underwriting comes down to two debt-to-income ratios. The front-end ratio is your housing payment divided by gross monthly income. The back-end ratio is all monthly debt obligations — housing plus car loans, student loans, minimum credit card payments, child support — divided by gross monthly income.
The traditional guideline is 28/36: no more than 28 percent of gross income to housing, no more than 36 percent to total debt. In practice, most conventional lenders will stretch the back-end ratio to 45 percent, and some government-backed programs go higher with compensating factors like large reserves or a strong credit score.
| Back-end DTI | Total monthly debt allowed | If you carry $650 in other debt, housing budget is |
|---|---|---|
| 36% (conservative) | $3,300 | $2,650 |
| 43% (common ceiling) | $3,942 | $3,292 |
| 50% (stretch, program-dependent) | $4,583 | $3,933 |
The important thing about that table is that the difference between the conservative and the aggressive figure is roughly $1,280 a month — about $200,000 of purchase price at current rates. That entire range is "approved." Only part of it is comfortable.
Cash is the other constraint
Affordability is not only a monthly question. You also need cash at closing, and running out of it is the most common way a preapproved buyer fails to actually close. Budget for:
- Down payment — anywhere from 3 percent to 20 percent or more depending on your loan
- Closing costs — typically 2 to 5 percent of the purchase price for a buyer
- Prepaid escrow — often several months of taxes plus a full year of homeowners insurance
- Inspection and appraisal — commonly $400 to $900 each, paid before closing
- Moving costs — see our moving cost estimator for a realistic figure
- Reserves — two to six months of housing payments left over after closing
That last line is the one buyers cut first and regret most. Closing with an empty account means the first water heater failure becomes credit card debt at 24 percent.
Working out your own number
Step one: find your true take-home
Lenders use gross income. You spend net. Pull three recent pay stubs and write down what actually arrives in your account each month, including anything already deducted for retirement and health insurance.
Step two: subtract the life you intend to keep
Childcare, retirement contributions, travel, hobbies, the car you plan to replace in two years. If buying a house requires you to zero these out, the house is too expensive — not morally, just arithmetically, because those costs come back whether you budgeted for them or not.
Step three: pick a housing number you can defend
Whatever is left after essentials and the life you intend to keep is your realistic ceiling. Many buyers land between 22 and 28 percent of gross income for housing. If your number is lower than the lender's, use yours.
How the down payment changes the math
A larger down payment reduces the loan, the payment, and often the interest rate — and at 20 percent it eliminates private mortgage insurance on a conventional loan. But it also drains reserves, and PMI is removable later while savings spent are gone. On a $400,000 purchase, moving from 10 percent down to 20 percent lowers the payment by roughly $350 to $400 a month and costs $40,000 in cash today.
There is no universal answer. If the extra $40,000 is your only emergency fund, keep it and pay PMI for a few years. If it is surplus, the lower payment and rate usually win.
What to do next
Run your figures through our affordability calculator, then take that number to two or three lenders and get real loan estimates. The estimates will differ, sometimes by thousands of dollars in fees, and comparing them is the highest-value hour in the entire homebuying process.
Frequently asked questions
What percentage of income should go to a mortgage?
A common guideline is 28 percent of gross monthly income for housing, though many buyers are approved for more. What matters more is your total picture: if childcare, student loans, or retirement savings are significant, a lower housing percentage is appropriate.
Does my spouse's income count if they are not on the loan?
No. Only the income of borrowers listed on the application is counted, though a non-borrowing spouse's debts may still be counted in community property states. Adding a spouse with weaker credit can also lower the rate the lender offers, since many lenders price on the lowest middle credit score among borrowers.
Can I afford a house on one income?
Yes, provided the payment fits the ratios and you have reserves. Single-income buyers should weight reserves more heavily, because there is no second earner to absorb a job loss.
Should I use my maximum preapproval amount?
Usually not. A preapproval is a ceiling based on underwriting formulas, not a recommendation. Most buyers who are still comfortable three years later bought meaningfully below their maximum.
Editorial note. This article is educational and is not financial, tax, or legal advice. Loan terms, rates, insurance costs, and tax rules vary by lender, state, and individual circumstance. Figures shown are illustrative. Confirm details with a licensed lender, tax professional, or attorney before making a decision.
