How Much House Can I Afford?
The Thompson family in Dallas earns $85,000 per year and has saved $25,000 for a down payment. They have $450 in monthly debt payments and are looking at homes in a market where interest rates are 6.5%. They want to know the maximum price they should consider. Using the 28/36 rule, their monthly income is $7,083. The 28% rule caps their housing payment at $1,983. The 36% rule caps their total debt at $2,550, leaving $2,100 for housing after their $450 in existing debts. The lower of the two limits, $1,983, governs. At 6.5% over 30 years, that payment supports a loan of about $313,000, and with their $25,000 down payment, their maximum home price is about $338,000.
Home affordability is determined by the interaction of income, debts, down payment, interest rate, and loan term. The 28/36 rule is the standard guideline used by mortgage lenders: no more than 28% of gross monthly income should go toward housing costs, and no more than 36% should go toward all debt combined. This calculator applies both rules and uses the more restrictive one to determine your maximum affordable home price. For a more detailed version with property tax and insurance inputs, see our House Affordability Calculator.
What This Calculator Does
This home affordability calculator estimates your maximum home price based on annual income, down payment, monthly debts, interest rate, and loan term using the 28/36 rule.
- Inputs: Annual gross income, down payment, monthly debt payments, interest rate, and loan term
- Outputs: Maximum home price, maximum loan, estimated monthly payment, DTI ratio, and affordability breakdown
How the Calculation Works
28% Rule: Max Housing Payment = Monthly Income x 0.28
36% Rule: Max Total Debt = Monthly Income x 0.36
Max Housing from DTI = Max Total Debt - Existing Debts
Max Loan = PV of Max Monthly Payment at given rate and term
Max Home Price = Max Loan + Down Payment
The calculator first determines the maximum monthly housing payment using both the 28% rule and the 36% rule (minus existing debts). It takes the lower of the two as the binding constraint. Then it calculates the maximum loan amount that payment can support at the given interest rate and term using the standard mortgage amortization formula. Adding the down payment gives the maximum home price.
How to Use the Calculator
- Enter your annual gross income (before taxes)
- Enter your down payment amount
- Enter your total monthly debt payments
- Enter the current mortgage interest rate
- Select your loan term (15, 20, or 30 years)
- Review your maximum home price, loan, and monthly payment
Example Calculation
Example: A buyer earns $70,000 per year ($5,833 per month), has $15,000 for a down payment, $300 in monthly debts, and faces a 7% interest rate on a 30-year loan. The 28% rule allows $1,633 for housing. The 36% rule allows $2,100 total debt minus $300 existing = $1,800 for housing. The binding limit is $1,633. At 7% over 30 years, this supports a loan of about $245,000. With the $15,000 down payment, the maximum home price is about $260,000. To calculate the exact monthly payment on a specific loan, use our Mortgage Calculator.
Common Mistakes to Avoid
- Forgetting property taxes and insurance: The 28% rule should include property taxes, homeowners insurance, and HOA fees in addition to principal and interest. This calculator focuses on the loan payment; budget separately for taxes and insurance, which can add 20% to 30% to your monthly housing cost.
- Using the maximum as your target: Just because you can afford a certain price does not mean you should spend that much. Buying below your maximum gives you a financial cushion for unexpected expenses, rate increases, or income changes.
- Underestimating existing debts: If you plan to take on new debt like a car loan before buying, factor it in. Even a $300 monthly payment can reduce your affordable home price by $40,000 or more.
Limitations of This Calculator
This calculator uses the 28/36 rule and does not separately account for property taxes, homeowners insurance, PMI, or HOA fees, which are part of the real monthly housing cost. It also does not factor in closing costs, which typically run 2% to 5% of the purchase price. For a version that includes property tax and insurance inputs, see our House Affordability Calculator. To check your DTI ratio independently, use our Debt-to-Income Ratio Calculator.