How much house can you afford?
The 28/36 rule, explained
Most US lenders size your mortgage with the 28/36 rule. The front-end ratio (28%) says your total monthly housing cost — principal, interest, property tax and insurance (PITI) — should not exceed 28% of your gross monthly income. The back-end ratio (36%) says all your monthly debt payments combined (housing plus car loans, student loans, credit-card minimums) should stay under 36%.
Whichever limit binds first sets your ceiling. Someone with big car and student-loan payments is usually capped by the 36% back-end rule long before the 28% housing rule kicks in.
Why the down payment matters twice
A larger down payment helps in two ways. First, it directly reduces the loan you need, lowering the monthly payment. Second, crossing the 20% down threshold removes private mortgage insurance (PMI) — typically 0.5%–1.5% of the loan per year — freeing more of your 28% housing budget for the actual mortgage. That’s why the jump from 15% to 20% down often unlocks a noticeably bigger affordable price.
Interest rates move your budget more than you think
Because a 30-year mortgage stretches payments over 360 months, small rate moves have large effects. Going from a 6% to a 7% rate raises the monthly payment on a $400,000 loan by roughly $260 — money that comes straight out of your housing budget and can knock tens of thousands of dollars off the price you qualify for. When rates fall, the opposite happens and your buying power rises.
Don’t forget tax and insurance
PITI is more than principal and interest. Property tax averages around 1.1% of home value per year nationally (far higher in some states), and homeowners insurance adds several hundred to a couple of thousand dollars annually. Lenders count these in the 28% test, so a realistic affordability estimate must include them — our calculator does, which is why its number is usually lower (and more honest) than a simple "payment you can afford" figure.