Find out how much house you can afford based on the 28/36 rule
The 28/36 rule is a standard guideline lenders use to assess how much house you can afford. The front-end ratio (28%) says your total housing payment (PITI) should not exceed 28% of your gross monthly income. The back-end ratio (36%) says your total monthly debt payments (housing + car loans + student loans + credit cards) should not exceed 36% of your gross monthly income. This calculator uses these ratios to determine your maximum affordable home price.
As a rough estimate, with a $100,000 annual salary, $60,000 down, and typical debt, you can afford a home in the $350,000-$450,000 range depending on interest rates and local property taxes. This calculator gives you a personalized estimate. Remember that the maximum is not always the best choice — buying at the edge of your budget leaves little room for emergencies, home repairs, or life changes.
Front-end DTI (housing ratio): Your mortgage payment (PITI) divided by your gross monthly income. Conventional lenders typically cap this at 28%. Back-end DTI (total debt ratio): All your monthly debt payments (mortgage + car loans + student loans + credit card minimums + alimony) divided by gross monthly income. Most conventional loans cap this at 36%, FHA loans allow up to 43-50% with compensating factors.
Your credit score directly affects your mortgage interest rate, which is the biggest lever on affordability. A 760+ score gets the best rate; a 620 score (the minimum for most conventional loans) can mean a rate 1-2% higher. On a $350,000 loan, a 1% rate difference costs about $240/month — which means you can afford roughly $50,000 less house. Check your credit score before house-hunting and dispute any errors.
Closing costs typically run 2-5% of the home purchase price, on top of your down payment. On a $400,000 home, that's $8,000-$20,000. These include: loan origination fees, appraisal, title insurance, escrow setup, and prepaid interest. Some sellers will agree to cover closing costs as part of negotiations. Make sure you have cash reserves beyond the down payment — lenders also want to see 2-6 months of mortgage payments in savings after closing.
Putting 20% down has big advantages: no PMI, lower monthly payments, and immediate equity. But it ties up a lot of cash. Options for less than 20%: FHA loan (3.5% down, but mortgage insurance for life), Conventional 97% (3% down, PMI can be removed at 20% equity), VA loan (0% down for veterans, no PMI). The best choice depends on your savings, how long you plan to stay, and local appreciation trends.
The "recommended price" applies a more conservative 25% front-end ratio instead of 28%. Lenders will qualify you at the maximum, but that maximum often leaves no room for: home maintenance (1-2% of home value per year), property tax increases, insurance premium hikes, HOA special assessments, or unexpected life events. Financial advisors often recommend buying 10-20% below the lender's maximum to keep your housing costs comfortable.