How Much House Can You Actually Afford? A Practical Guide

Lenders will often approve you for more house than you should actually buy. Just because a bank says yes to a certain loan amount doesn’t mean that payment fits comfortably into your life. Here’s how to work out a number that’s right for your actual budget, not just your approval letter.

Start with the 28/36 rule

Most mortgage lenders use a version of the 28/36 rule as a baseline: your housing costs shouldn’t exceed 28% of your gross monthly income, and your total debt payments (housing plus car loans, student loans, credit cards) shouldn’t exceed 36%. If you earn $6,000 a month before taxes, that puts your housing budget at roughly $1,680 and your total debt ceiling at $2,160.

These are guidelines, not hard rules, some lenders stretch to 43% or higher for well-qualified borrowers, but starting conservative gives you breathing room for the expenses a mortgage approval doesn’t account for.

Remember your payment is more than principal and interest

A common mistake is budgeting only for the principal and interest portion of a mortgage payment. Your real monthly housing cost usually includes:

• Principal and interest (the loan repayment itself)
• Property taxes, often 1-2% of your home’s value per year
• Homeowners insurance
• Private mortgage insurance (PMI) if your down payment is under 20%
• HOA fees, if applicable

Together these can add 20-30% on top of your base principal and interest figure. Our mortgage calculator factors in property tax and insurance so you can see your full estimated monthly payment, not just the loan repayment portion.

Account for the costs that don’t show up in a pre-approval letter

A pre-approval tells you what a bank will lend, not what fits your life. Before settling on a number, budget separately for:

• Maintenance: a common rule of thumb is 1-2% of your home’s value per year for repairs and upkeep.
• Utilities: a larger home usually means higher heating, cooling, and utility bills than renting did.
• Closing costs: typically 2-5% of the loan amount, due upfront.
• Furnishing and moving: often overlooked, but a real one-time cost.

Run the numbers before you shop

Before touring homes, plug a realistic price range into a mortgage calculator using your actual down payment and a current interest rate, then compare the resulting monthly payment against your actual take-home budget, not your gross income. If the payment feels tight on paper, it will feel tighter once maintenance and utility costs are added.

Try a few different price points with our mortgage calculator to see how the monthly payment changes with a larger down payment, a shorter loan term, or a different price range, before you fall in love with a listing above your comfort zone.

What percentage of income should go toward a mortgage?

A common guideline is no more than 28% of your gross monthly income for housing costs, and no more than 36% for total monthly debt payments including housing.

Should I buy at the top of my pre-approval amount?

Not necessarily. A pre-approval reflects what a lender will loan you, not what’s comfortable for your budget once taxes, insurance, maintenance, and other debts are factored in.

How much should I budget for closing costs?

Closing costs typically run 2-5% of the loan amount and are due at the time of purchase, separate from your down payment.