How Much House Can You Afford? Breaking Down the Math

Buying a home is one of the biggest financial decisions you’ll ever make—and figuring out how much house you can afford is the very first step. It’s not just about the listing price or your dream neighborhood. It’s about getting real with your budget, understanding lending guidelines, and being smart with your money.

Let’s break down the math in simple terms so you can confidently navigate your homebuying journey.

Step 1: Know Your Income

Start with your gross monthly income—that’s your income before taxes and other deductions. If you’re salaried, this is easy. If you’re self-employed or have variable income, calculate your average monthly earnings over the past 12-24 months.

Example:
$75,000 salary ÷ 12 months = $6,250 gross monthly income

Step 2: Understand the 28/36 Rule

Most lenders use the 28/36 rule as a guideline for affordability:

• You should spend no more than 28% of your gross monthly income on housing expenses (this includes mortgage, taxes, insurance, and HOA fees).
• Your total monthly debt payments (including housing, car loans, student loans, credit cards, etc.) should be no more than 36% of your gross monthly income.

Using our example:

• 28% of $6,250 = $1,750 max for housing
• 36% of $6,250 = $2,250 max for total debt (housing + other debts)

Step 3: Factor in All Housing Costs

When budgeting, don’t just look at the mortgage payment. Consider:

• Principal & Interest (your loan payment)
• Property Taxes
• Homeowners Insurance
• Private Mortgage Insurance (PMI) if your down payment is less than 20%
• HOA Fees, if applicable

A $1,750/month budget might translate into a $250,000–$300,000 home, depending on rates and taxes in your area. Use online mortgage calculators to play with the numbers.

Step 4: Consider Your Down Payment

While 20% down is ideal (to avoid PMI), many buyers put down less.

• Conventional loans: As low as 3% down
• FHA loans: 3.5% down
• VA loans: 0% down (for qualified veterans)

Just remember, the more you put down, the lower your loan amount—and the lower your monthly payment.

Step 5: Don’t Max Out Your Budget

Just because a lender approves you for a certain amount doesn’t mean you should spend it all. Life happens—unexpected repairs, job changes, or even just wanting some breathing room in your budget.

Think long-term: Would you still feel comfortable with that payment if your expenses increase or your income changes?

Final Thoughts

The “right” amount of house is the one that fits your lifestyle, your goals, and your wallet—not just what the lender says you qualify for. By understanding the math, you can shop smarter and avoid buyer’s remorse down the road.

Want help calculating what you can afford? Reach out—I’d be happy to walk you through your options and connect you with a trusted lender.