How Much House Can I Afford Based on My Income?
The bank may approve you for more than you can actually afford. Here's the formula financial advisors actually recommend.
General information, not professional advice — see terms of use.
Use the 28/36 rule:
- Your monthly mortgage payment (including taxes and insurance) should not exceed 28% of your gross monthly income
- Your total monthly debt payments should not exceed 36% of gross monthly income
Example: $6,000/month gross income → maximum mortgage payment of $1,680/month.
At 6.5–7% rates, a $1,680/month payment covers a mortgage of about $260,000–$275,000. Add your down payment to get your purchase price ceiling.
Warning: Many lenders approve you up to 43–50% DTI. This is how buyers become house poor — technically able to pay, but with nothing left for savings or emergencies.
Additional costs to factor in: Property taxes (0.5–2.5% annually), homeowner's insurance, HOA fees, and maintenance (budget 1% of home value per year).
Follow-up questions
How much do I need for a down payment?
FHA loans allow 3.5% down; conventional loans allow as little as 3% for first-time buyers. The traditional 20% down avoids PMI (0.5–1.5% of loan annually) but isn't required. Many state programs offer down payment assistance.
Is it better to buy or rent right now?
If you plan to stay less than 3–5 years, renting is usually financially better because transaction costs take years to recoup. Use the New York Times Rent vs. Buy Calculator to run your specific numbers.
What is PMI and can I avoid it?
Private Mortgage Insurance is required when your down payment is less than 20%. It typically costs 0.5–1.5% of the loan annually and can be removed once you reach 20% equity.
More finance answers
This page is general information, not professional advice, and it may not reflect the latest rules where you live. For your own situation, talk to a qualified adviser. Spotted an error? Email per@upperia.se and we will fix it.