How Much House Can I Afford on My Salary?
Use the 28/36 rule and a simple sanity check formula to figure out how much home you can genuinely afford on your current income.
The 28/36 Rule Simply Explained
Lenders and financial advisors use a simple guideline called the 28/36 rule to quickly assess home affordability. The first number means your monthly housing payment should not exceed 28% of your gross monthly income. The second number means all your debt payments combined should not exceed 36% of your gross monthly income.
Gross income is your income before taxes are taken out. If you earn $70,000 per year, your gross monthly income is roughly $5,833. Multiply that by 0.28 and you get $1,633. That is the maximum monthly housing payment the rule recommends — covering your mortgage principal, interest, property taxes, and insurance combined.
Applying the 36% back-end limit to the same $70,000 salary gives you $2,100 total for all debts per month. If you already pay $400 per month on car loans and student loans, your mortgage payment should not exceed $1,700 by this calculation.
What Lenders Actually Look At
Lenders care deeply about your debt-to-income ratio, your credit score, your down payment amount, and your employment history. Your credit score determines what interest rate you qualify for, which has a massive effect on your monthly payment. A 1% difference in rate on a $300,000 mortgage is roughly $180 per month, or over $64,000 over the life of a 30-year loan.
Employment stability matters too. Lenders typically want to see two years of consistent income in the same field. Recent job changes, gaps in employment, or self-employment income can all complicate the approval process even if your income looks good on paper.
The down payment affects both your eligibility and your monthly costs. Putting down 20% lets you avoid PMI, which can add $100 to $300 per month to your payment on a typical home purchase. Less than 20% down means paying PMI until your equity reaches 20%.
Hidden Costs People Forget
First-time buyers frequently underestimate the true cost of homeownership. The mortgage payment is just the starting point. Property taxes in many areas run 1% to 2% of the home's value annually. On a $350,000 home, that is $3,500 to $7,000 per year, or $292 to $583 per month added to your payment.
Homeowners insurance typically costs $1,000 to $2,000 per year depending on location and property value. HOA fees can range from $0 to $1,000 per month or more in some communities. Maintenance and repairs traditionally cost 1% to 3% of the home's value annually, though that figure varies widely.
A home that looks affordable at $1,600 per month for the mortgage might actually cost $2,200 or more per month once taxes, insurance, HOA, and maintenance reserves are factored in. Running those full numbers before buying prevents the shock of feeling house-poor after closing.
A Quick Sanity Check Formula
A common rule of thumb says your home purchase price should not exceed two and a half to three times your annual gross income. On a $80,000 annual salary, that points to a home priced between $200,000 and $240,000. At current interest rates, a $220,000 mortgage on a 30-year term at 7% carries a principal and interest payment of about $1,464 per month.
Run that payment plus estimated taxes, insurance, and HOA through the 28% test using your gross monthly income. If the total stays under 28%, you are in the generally recommended range. If it pushes above 30% or 33%, you may be buying at the outer limits of what you can comfortably afford.
The most honest sanity check is not a formula but a cash-flow exercise. Look at your take-home pay after taxes and your current monthly expenses. Subtract the projected total housing cost. If what remains is too thin to cover your other goals — savings, retirement, travel, emergencies — the home is likely out of comfortable range regardless of what a lender approves.