How Much House Can You Afford? The 28/36 Rule and What Lenders Don't Tell You
How Much House Can You Afford? The 28/36 Rule and What Lenders Don't Tell You
Before you start browsing Zillow listings, there's one question you need to answer first: how much house can you actually afford? Not how much the bank will lend you — that's a very different number, and it often leads people into homes they struggle to maintain.
This guide walks you through the real affordability math, the rules lenders use, and the free tool that does it for you instantly.
The 28/36 Rule: The Starting Point
Most lenders use two rules to determine how much they'll lend you:
- 28% gross income rule: Your total housing payment (principal, interest, taxes, insurance, HOA, PMI) should not exceed 28% of your gross monthly income
- 36% total debt rule: All monthly debt payments (housing + car loans + student loans + credit cards) should not exceed 36% of your gross monthly income
Example: You earn $85,000/year gross ($7,083/month gross)
- 28% of $7,083 = $1,983/month max for housing
- 36% of $7,083 = $2,550/month max for all debt
- If you have $400/month in other debt, your housing max drops to $2,150/month
This is the lender's view of affordability. Your actual number might be different based on your savings, lifestyle, and goals.
What Home Buyers Actually Consider
Beyond the lender's math, here are the factors that determine your true comfort level:
- Down payment size — More down = smaller loan = lower payment. 20%+ also eliminates PMI, which can add $100–$300/month
- Property taxes — Vary significantly by state and municipality. A $400k home in Texas vs. California can have $3,000–$8,000/year difference in property tax
- Homeowners insurance — Typically $1,000–$3,000/year depending on location, home value, and risk factors
- HOA fees — Can range from $50/month to $1,000/month. Always ask before making an offer
- Maintenance reserve — Rule of thumb: set aside 1–2% of home value per year for repairs and maintenance. On a $400k home, that's $4,000–$8,000/year
- Your other financial goals — A larger mortgage payment might crowd out retirement savings or an emergency fund
A Real Affordability Example
Your situation:
- Gross income: $95,000/year ($7,917/month)
- Car payment: $350/month
- Student loans: $275/month
- Down payment: $50,000 (10%)
- Interest rate: 6.75%
- Property tax: $4,800/year ($400/month)
- Insurance: $1,800/year ($150/month)
- No HOA
Lender's view (28/36 rule):
- Max housing payment: $2,217/month
- All debt max: $2,850/month
- After $625 existing debt: $2,225/month max for housing
With the numbers above:
- Loan amount: $450,000 at 6.75% / 30 years = ~$2,921/month (P&I)
- Total with taxes + insurance: ~$3,471/month
- $3,471 exceeds the $2,225 lender max → you'd be approved for less, or need to reduce other debt
Use the Mortgage Calculator to run your exact numbers.
How PMI Affects Your Affordability
If your down payment is less than 20%, you'll pay PMI — typically $30–$150/month depending on the loan size and credit score. PMI doesn't go away automatically; you have to request cancellation once you reach 20% equity.
On a $450,000 home with 10% down ($45,000):
- PMI at 0.5% of loan balance: ~$202/month added to your payment
- That $202 could instead go toward the principal, paying down your own equity faster
Use the mortgage calculator's PMI tracking to see exactly when you'll hit 20% equity and when PMI drops off.
Should You Buy or Rent?
The rent vs. buy decision depends on local markets, but here's the basic math to compare:
| Factor | Rent | Buy |
| Monthly cash flow | Lower upfront | Larger down payment + closing costs |
| Monthly payment | Fixed | Mortgage + taxes + insurance + maintenance |
| Equity building | None | Yes, but slowly at first |
| Flexibility | High | Low (transaction costs to sell) |
| Predictability | Landlords can raise rent | Mortgage is fixed (taxes/insurance vary) |
A common heuristic: if you plan to stay in a home for fewer than 3–5 years, transaction costs often outweigh the equity benefits of buying. If you plan to stay 7+ years, buying typically wins.
The Free Tool for Instant Affordability Answers
Rather than doing this math by hand, use the Mortgage Calculator — enter your income, home price, down payment, interest rate, and all ongoing costs to get an instant full cost picture. You can also see:
- Monthly payment broken down by P&I, taxes, insurance, HOA, and PMI
- When PMI drops off based on your payment schedule
- Total interest paid over the life of the loan
- Amortization schedule showing principal vs. interest over time
Bottom Line
The bank will tell you the maximum they can lend you. Your actual budget should account for the full cost of homeownership — taxes, insurance, maintenance, and PMI — not just the mortgage payment. Use the 28% rule as a starting point, run your real numbers with the calculator, and never skip the amortization review before you sign.
Try the Mortgage Calculator with your numbers to see what you actually qualify for.
Related tools:
- Mortgage Calculator — full cost breakdown with PMI tracking
- Loan Calculator — for smaller personal or auto loans
- Currency Converter — for cross-border home purchases