# How much house can you afford?

> Keep the full monthly home payment near 28% of gross pay, then work backward to a loan and a price.

Source: https://www.walletprep.com/learn/how-much-house-can-you-afford/ · Updated 2026-10-04 · Housing

A common rule of thumb, which the CFPB cites, is a total monthly home payment of no more than 28% of your gross income. Work backward from that payment, subtract taxes and insurance, and the rest tells you the loan, and with your down payment, the price.

## Key facts
- **The 28% rule of thumb.** The CFPB's home loan toolkit says a common mortgage lending rule of thumb is a total monthly home payment at or below 28% of gross monthly income. Lenders may approve more or less.
- **Debt-to-income ratio counts everything.** Lenders also divide all your monthly debt payments, including the new home payment, by your gross monthly income. Different lenders and loan types set different limits.
- **Rates move the price a lot.** The same monthly payment carries a smaller loan at a higher rate. Your credit score, down payment and loan type all affect the rate you are offered.
- **Conforming loan limits.** In most of the US, loans up to $832,750 in 2026 can be bought by Fannie Mae and Freddie Mac. High-cost areas go up to $1,249,125. Larger loans may have different terms.

## Start with the monthly payment
Lenders think in monthly payments, and so should you. Multiply your gross monthly income by 0.28 to get a starting ceiling for the total monthly home payment. On $84,000 a year, that is $7,000 × 0.28 = $1,960.
Then check it against your real budget. The CFPB suggests listing what you spend now, adding the new costs of owning, and deciding what you can comfortably pay. If your budget says less than 28%, use the lower number.

## Subtract what is not the loan
The total home payment includes property tax, homeowners insurance, mortgage insurance if you put less than 20% down, and HOA fees. None of that pays off the loan.
Subtract those from your target payment. What is left is what you can spend on principal and interest. That amount, the interest rate and the loan term together set the size of loan you can carry.

## Turn the payment into a price
Use a mortgage calculator, or the CFPB's tools, to find the loan a given principal and interest payment will carry at your expected rate. Then add your down payment. That sum is your price ceiling.
Remember closing costs come on top. The CFPB suggests budgeting 2% to 5% of the price for them, separate from the down payment.

## Check your debt-to-income ratio
Your debt-to-income ratio, or DTI, is all your monthly debt payments divided by gross monthly income. Include the new home payment, car loans, student loans and credit card minimums.
Lenders use DTI to judge whether you can handle the payments, and their limits differ. A lower DTI leaves more room in your budget and may help you qualify for better terms. Paying off a car loan before you apply can raise the price you can afford.

## Leave room for the rest of owning
The CFPB reminds buyers to budget for maintenance, repairs and utilities, which can be higher than in an apartment. Its worksheet uses 1% of the home's price a year for upkeep as a common rule of thumb.
If the payment fits only when saving stops and repairs are ignored, aim for a lower price. A smaller home that leaves room to breathe is a better deal than a bigger one that leaves you stretched.

## A worked example: working backward from 28%
Alex earns $84,000 a year ($7,000 a month), pays $400 on a car loan and has $40,000 for a down payment. Assume a 6.5% rate on a 30-year loan; real rates vary.

- 28% of $7,000 gross: $1,960
- Property tax: −$300
- Homeowners insurance: −$150
- Mortgage insurance (PMI): −$100
- Left for principal and interest: = $1,410
- Rate and term: 6.5%, 30 years
- Loan $1,410 a month carries: $223,077
- Down payment: $40,000
- Home price ceiling: = $263,077

1. $7,000 × 0.28 = $1,960. Minus tax $300, insurance $150 and PMI $100 leaves $1,960 − $550 = $1,410 for principal and interest.
2. At 6.5% for 30 years, $1,410 a month pays off a loan of about $223,077. Add $40,000 down for a price ceiling near $263,000.
3. DTI check: ($1,960 + $400) ÷ $7,000 = 33.7%. Alex keeps closing costs and an emergency fund separate from the $40,000.

## Common mistakes
- **Shopping at your approval amount.** A preapproval tells you what a lender will lend. It does not know about your savings goals, child care or the car that needs replacing next year.
- **Leaving out tax and insurance.** A payment quote that covers only principal and interest can be hundreds of dollars short of what you will really pay each month.
- **Spending the emergency fund at closing.** New owners often face repairs in the first year. Keep at least three months of expenses saved after the down payment and closing costs.

## Questions people ask
### How much house can I afford on $100,000 a year?
By the 28% rule, $100,000 ÷ 12 × 0.28 = about $2,333 a month for the full home payment. The price depends on your rate, taxes, insurance, debts and down payment. Run your numbers in the mortgage calculator.

### Is the 28% rule based on gross or take-home pay?
Gross pay, before taxes. Because taxes and retirement contributions come out first, 28% of gross can feel tight. Check the payment against your take-home budget too.

### Does a bigger down payment let me afford more house?
Yes, in two ways. Each extra dollar down adds directly to the price, and reaching 20% down on a conventional loan usually removes private mortgage insurance, which frees more of the payment for the loan.

### Should I get preapproved before house hunting?
It helps, since sellers take preapproved buyers more seriously. Decide your own budget first, then get Loan Estimates from at least three lenders to compare.

## Do this today
Multiply your gross monthly pay by 0.28. Subtract a local estimate for property tax and insurance, then put the rest into the mortgage calculator at a realistic rate to see your loan and price ceiling.

## Sources
- [CFPB: Your home loan toolkit (28% rule of thumb)](https://files.consumerfinance.gov/f/documents/cfpb_your-home-loan-toolkit_print_2026-08.pdf)
- [CFPB: Decide how much you want to spend on a home](https://www.consumerfinance.gov/owning-a-home/prepare/decide-how-much-you-want-spend/)
- [CFPB: Mortgage moves, how much can you afford?](https://www.consumerfinance.gov/archive/blog/mortgage-moves-how-much-can-you-afford/)
- [CFPB: What is a debt-to-income ratio?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/)
- [CFPB: Explore interest rates](https://www.consumerfinance.gov/owning-a-home/explore-rates/)
- [FHFA: Conforming loan limit values](https://www.fhfa.gov/news/news-release/fhfa-announces-conforming-loan-limit-values-for-2026)

_General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act._