How Much House Can I Afford? Income-Based Calculator Guide

· February 25, 2026 · ·Real Estate

The Most Important Question in Home Buying

Before you browse listings or attend open houses, you need to answer one critical question: how much house can I actually afford? The answer is not simply what a lender is willing to loan you. It is the amount you can borrow while still living comfortably, saving for retirement, and handling the unexpected costs that come with homeownership.

This guide walks you through the rules, ratios, and real-world math that determine your true home-buying budget – whether you earn $50,000 or $150,000 a year.

The 28/36 Rule: Your Starting Point

The 28/36 rule is the most widely used guideline in mortgage lending:

  • 28% front-end ratio: Your monthly housing costs (mortgage principal, interest, property taxes, homeowners insurance, and any HOA fees) should not exceed 28% of your gross monthly income.
  • 36% back-end ratio: Your total monthly debt payments (housing costs plus car loans, student loans, credit cards, and other debt) should not exceed 36% of your gross monthly income.

For example, if your household earns $8,000 per month gross, your maximum housing payment under the 28% rule is $2,240, and your total debt payments should stay under $2,880.

Some lenders will approve you above these thresholds – FHA loans allow a back-end DTI up to 43%, and some conventional programs go as high as 50% with strong compensating factors. But just because you can get approved does not mean you should borrow the maximum. The 28/36 rule exists because it leaves room for savings, emergencies, and quality of life.

The 50/30/20 Budget Framework

Another way to sanity-check your housing budget is the 50/30/20 rule applied to your after-tax income:

  • 50% for needs: Housing, groceries, utilities, insurance, minimum debt payments, transportation.
  • 30% for wants: Dining out, entertainment, travel, subscriptions, hobbies.
  • 20% for savings and extra debt payoff: Retirement contributions, emergency fund, additional debt payments.

Since housing is just one component of the 50% needs bucket, it should ideally consume no more than 25-30% of your take-home pay. If your mortgage payment eats up 40% of your net income, there is little room left for groceries, utilities, and transportation – let alone saving for the future.

Debt-to-Income Ratio (DTI) Explained

Your DTI ratio is the single most important number lenders use to determine how much you can borrow. It is calculated as:

DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100

Monthly debt payments include: mortgage (PITI), car loans, student loans, credit card minimum payments, personal loans, alimony, and child support. They do NOT include utilities, groceries, insurance (other than homeowners), or subscriptions.

DTI tiers and what they mean:

  • Under 36%: Excellent. You will qualify for the best rates and terms.
  • 36%-43%: Acceptable for most loan programs. FHA maximum is typically 43%.
  • 43%-50%: Possible with strong compensating factors (high credit score, large reserves, significant down payment) but risky for your budget.
  • Over 50%: Most lenders will decline. Focus on paying down debt before applying.

How Lenders Calculate Your Maximum Loan

Lenders use your DTI, credit score, down payment, and the current interest rate to determine your maximum loan amount. Here is a simplified version of the math:

  1. Take your gross monthly income.
  2. Multiply by 0.28 (the front-end ratio) to get your maximum PITI payment.
  3. Subtract estimated monthly property taxes (roughly 1-2% of home value annually, divided by 12) and homeowners insurance ($100-$300/month depending on location).
  4. The remainder is your maximum principal + interest payment.
  5. Using mortgage amortization tables or an online calculator, convert that P&I payment to a loan amount at the current interest rate.
  6. Add your down payment to get your maximum purchase price.

Income Scenarios: What You Can Afford in 2026

Assuming a 30-year fixed mortgage at 6.5%, 20% down payment, 1.2% property tax rate, and $150/month insurance. These are estimates – your actual numbers will vary by location and personal finances.

$50,000 Annual Income ($4,167/month gross)

  • Max housing payment (28%): $1,167/month
  • Estimated P&I after taxes/insurance: ~$800/month
  • Approximate loan amount: $126,000
  • Approximate purchase price (with 20% down): $157,500

$75,000 Annual Income ($6,250/month gross)

  • Max housing payment (28%): $1,750/month
  • Estimated P&I after taxes/insurance: ~$1,300/month
  • Approximate loan amount: $206,000
  • Approximate purchase price: $257,000

$100,000 Annual Income ($8,333/month gross)

  • Max housing payment (28%): $2,333/month
  • Estimated P&I after taxes/insurance: ~$1,800/month
  • Approximate loan amount: $285,000
  • Approximate purchase price: $356,000

$150,000 Annual Income ($12,500/month gross)

  • Max housing payment (28%): $3,500/month
  • Estimated P&I after taxes/insurance: ~$2,850/month
  • Approximate loan amount: $451,000
  • Approximate purchase price: $564,000

Important: These numbers assume zero other debt. If you have a $400/month car payment, your buying power drops by roughly $60,000-$65,000.

The Hidden Costs Most Buyers Forget

Your mortgage payment is not the full cost of homeownership. Budget for these additional expenses, which together add 1-4% of the home value annually:

Property Taxes

Rates vary dramatically by location. Texas averages 1.8%, New Jersey 2.2%, while Hawaii is just 0.3%. On a $350,000 home in Texas, that is $6,300 per year ($525/month). Always verify the actual tax rate for a specific property – do not rely on averages.

Homeowners Insurance

National average is roughly $1,800-$2,400 per year, but costs vary widely. Homes in hurricane or wildfire zones can pay $5,000-$10,000+ annually. Get quotes before making an offer, not after.

Private Mortgage Insurance (PMI)

If you put down less than 20%, you will pay PMI of 0.5-1.5% of the loan amount annually until you reach 20% equity. On a $300,000 loan, that is $125-$375/month.

Maintenance and Repairs

The standard rule of thumb is to budget 1% of the home value per year for maintenance. For an older home, budget 2-3%. A $350,000 home needs $3,500-$10,500/year set aside for repairs, appliance replacements, and upkeep.

Utilities

Moving from a small apartment to a house often doubles or triples utility costs. Budget $200-$500/month depending on home size, climate, and energy efficiency.

HOA Fees

If applicable, HOA fees typically range from $200-$500/month for condos and $50-$200/month for single-family home communities. These are mandatory and tend to increase over time.

How to Increase Your Buying Power

If the numbers above are discouraging, here are proven strategies to expand your budget:

  • Pay down debt aggressively. Eliminating a $300/month car payment can increase your buying power by $45,000-$50,000.
  • Improve your credit score. Moving from 680 to 740 can save 0.25-0.50% on your interest rate, translating to $15,000-$30,000 in additional purchasing power.
  • Increase your down payment. Saving an extra $20,000 directly adds $20,000 to your purchase price and may eliminate PMI, freeing up monthly cash flow.
  • Use first-time buyer programs. FHA loans (3.5% down), VA loans (0% down), and state DPA grants can dramatically reduce your upfront costs.
  • Consider a co-borrower. Adding a spouse, partner, or family member income to the application increases the qualifying income. Just remember: both credit scores and debts are considered.
  • Explore different loan types. A 7/1 ARM may offer a lower initial rate, boosting your buying power – but understand the reset risk.

Why Pre-Approval Matters

A mortgage pre-approval is not just a formality – it is a verified calculation of what you can borrow based on your actual income, debts, credit score, and down payment. Pre-approval gives you:

  • A realistic budget. No more guessing or using rough calculators.
  • Credibility with sellers. Sellers prefer offers from pre-approved buyers because the financing risk is lower.
  • Faster closing. Much of the underwriting legwork is already done.

Get pre-approved before you start seriously shopping. Apply with 3-5 lenders within a 14-day window (counts as one credit inquiry) to compare offers.

The Bottom Line: Comfort Over Maximum

The question is not how much house can I qualify for, but how much house can I comfortably afford. A good target is a monthly housing payment that leaves you room to save 15-20% of your income for retirement, maintain a 3-6 month emergency fund, and still enjoy your life. If the only way to afford a house is to stretch every dollar to its limit, you are not ready yet – and that is okay. Paying down debt, saving a larger down payment, or increasing your income for 12-18 months can dramatically improve your position and help you buy a home you love without financial stress.