The answer depends on your income, debts, down payment, and current interest rates. Lenders use two key ratios: the 28/36 rule and your debt-to-income ratio. Here is exactly how to calculate how much house you can afford.
Most lenders follow the 28/36 rule. Your monthly housing payment (principal, interest, taxes, insurance, and HOA) should not exceed 28% of your gross monthly income. Your total debt payments (including the mortgage, car loans, student loans, and minimum credit card payments) should stay under 36%.
For example, if you earn $75,000 per year ($6,250/month), your housing payment should be at most $1,750/month and your total debt payments under $2,250/month.
Follow these steps to determine your maximum affordable home price:
Interest rates dramatically affect how much house you can afford. A 1% rate increase can reduce your buying power by 10-15%. At a 6.5% rate on a 30-year mortgage, a $2,000/month payment supports a roughly $316,000 loan. At 7.5%, that drops to about $286,000.
This is why getting the best rate matters. Improve your credit score, save a larger down payment (20% eliminates PMI), and compare offers from multiple lenders.
Your mortgage payment is just the beginning. Budget for these additional costs:
Quick guidelines for estimating affordability:
With a $60K salary, you can typically afford a home between $180,000 and $240,000. This assumes a 20% down payment, moderate debt, and current interest rates around 6.5-7%.
Yes, but your options are limited. With $40K income, you might qualify for a $120,000-$160,000 home. Consider FHA loans with 3.5% down, first-time buyer programs, or dual-income purchasing.
To afford a $400K home with 20% down, you need an annual income of approximately $100,000-$120,000, assuming a 6.5% interest rate and moderate debt levels.