How Much House Can I Afford?
The price your income supports under the 28/36 rule, with taxes and insurance included properly.
The 28% housing ratio is the constraint here. Lenders may approve more, and approval is not the same as affordable: this uses gross income, while you spend net. Taxes and insurance scale with the price of the house, so this is solved for the price where everything fits, not just the loan.
Lenders judge affordability with two ratios. The front-end ratio caps housing at 28% of gross monthly income. The back-end ratio caps all debt payments, housing included, at 36%. Whichever binds first is your real limit.
Worked example. On $120,000 of income, gross monthly income is $10,000. The front-end rule allows $2,800 of housing. With $500 of other debt payments, the back-end rule allows $3,600 less $500, which is $3,100. The front-end rule binds, so the housing budget is $2,800.
Frequently asked questions
Is the 28/36 rule a hard limit?
No. It is conventional guidance, and automated underwriting regularly approves higher, especially with strong credit, cash reserves, or a large down payment. FHA commonly allows 31/43. Treat these as the point past which you should be deliberate rather than the point where you are refused.
Should I borrow the maximum I am approved for?
Usually not. These ratios use gross income, but you spend net. After tax, retirement contributions, and health insurance, a payment at 28% of gross can easily be 40% of what actually lands in your account. Approval is a lending decision, not a budgeting one.
What costs does this include?
Principal, interest, property tax, insurance, and HOA. It excludes maintenance, which runs about 1% of the home's value a year, and utilities, which are usually higher than in a rental. Both are real and neither appears on a mortgage statement.
How much does clearing debt help?
Directly, if the back-end ratio is your constraint. Every dollar of monthly debt payment removed frees a dollar of housing budget, which is worth several hundred dollars of home price. When the front-end ratio binds instead, clearing debt does not raise the number at all.
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