How Much House Can You Actually Afford? (28/36 Rule Explained)
Lenders approve a payment, not a lifestyle. The maximum a bank will offer is set by its risk rules, and it routinely exceeds what a household can carry while still saving, eating out occasionally and sleeping well. Affordability has two answers — the lender's and yours — and the smaller one is the right one.
The lender's arithmetic: 28/36
Most lenders cap housing costs (principal, interest, property tax, insurance, HOA) at about 28% of gross monthly income, and total debt payments at about 36–43%. On $110,000 a year, 28% is $2,567 a month for housing. At 6.5% with typical tax and insurance, that supports a loan near $330,000 — a home around $390,000–$410,000 with 15–20% down. Existing car and card payments eat the same 36% bucket and reduce the house budget directly.
Your arithmetic: the costs the listing hides
Ownership adds costs renters never see: maintenance and repairs run about 1% of the home's value per year on average — $4,000 on a $400,000 home, arriving in lumps (a roof, a furnace). Property tax and insurance rise over time. Buying itself costs 2–5% in closing costs, and selling costs 5–6% in commissions, which is why moving within three years usually loses money. A payment that leaves no room for a savings rate of at least 10% and a maintenance reserve is not affordable, whatever the approval letter says.
- Keep total housing cost (PITI + HOA) under roughly 25–28% of gross income to leave savings room.
- Budget 1% of value per year for maintenance from day one, in a separate account.
- Under 20% down usually means PMI — about 0.5–1% of the loan per year until you reach 20% equity.
Questions, answered
Should I use my full pre-approval amount?
Treat it as a ceiling set by the lender's risk model, not a target. Buy at the price where the total monthly cost still fits your savings plan.
Does a bigger down payment change affordability?
Yes: it shrinks the loan, the payment and total interest, and removes PMI at 20%. It does not change the maintenance, tax and insurance costs of the same house.
Reviewed by Tahir Shehzad, ACMA. Figures are reviewed against the sources on our methodology page. This guide is education, not personal financial advice.