How Much House Can I Afford? The 28/36 Rule, Real Numbers and What Lenders Actually Check
The 28/36 rule explained with worked examples, why your pre-approval number is not your budget, and how taxes, insurance, PMI and debt quietly shrink what you can safely spend.
“How much house can I afford?” is the single most searched home-buying question in America — and the internet gives three completely different answers to it. Your lender will tell you one number, your budget spreadsheet another, and your future self a third. Here’s how to reconcile them.
The rule lenders actually use: 28/36
Most US lenders qualify you with two ratios, called the 28/36 rule:
- Front-end (28%): your total housing payment — principal, interest, property taxes, insurance, and HOA fees — should be no more than 28% of your gross monthly income.
- Back-end (36%): that same housing payment plus all your other debt payments (car loans, student loans, credit card minimums) should be no more than 36% of gross income.
Let’s run a real example. Say you earn $96,000 a year ($8,000 gross per month):
| Limit | % | Max monthly payment |
|---|---|---|
| Front-end | 28% | $2,240 |
| Back-end (with $400/mo other debt) | 36% | $2,480 → capped at $2,240 after subtracting debt |
So the rule says you can carry up to $2,240/month in housing costs.
Why $2,240 does not mean a $2,240 mortgage
This is the mistake almost everyone makes. That $2,240 number is not principal and interest — it’s the all-in payment, including:
- Property taxes — about 1% of home value per year on average in the US, but 2%+ in Texas, New Jersey and Illinois. On a $400,000 house, that’s $330–$670 a month by itself.
- Homeowners insurance — typically $120–$250/month, more in hurricane or wildfire zones.
- HOA fees — often $200–$500/month in condos and planned communities. Many buyers forget these exist until the lender’s worksheet shows up.
- PMI — if you put less than 20% down, expect $100–$300/month until you hit 20% equity.
Do the subtraction: $2,240 − $350 (taxes) − $180 (insurance) − $250 (HOA) leaves about $1,460/month for actual principal and interest. At a 6.5% 30-year rate, that supports a loan of roughly $231,000. With 20% down, the house price you can afford is around $289,000 — dramatically less than what the raw “28%” math first suggested.
Run your own numbers with the Mortgage Calculator, which includes taxes, insurance and PMI instead of quoting the fantasy payment.
Why your pre-approval letter lies to you
A lender’s pre-approval is calculated to the back-end ratio using your best-case profile: gross income (not take-home), no future expenses, and debt-to-income limits that stretch to 45% or even 50% at some lenders. Two things make that number unsafe:
- Gross vs. net. $8,000 gross is often $6,100 after federal tax, state tax, FICA and health premiums. A 36% payment on gross income is a 45%+ payment on what actually lands in your bank account.
- Lenders don’t know your life. Childcare, commuting, the old truck that needs brakes — none of it appears in their math. Yours does.
A comfortable budget for most buyers sits 10–15% below their pre-approval number. That gap is what makes the difference between house-poor and fine.
The affordability ladder: a quick reference
For a 30-year loan at 6.5%, with 20% down and the 28/36 rule, here’s roughly what different incomes support:
| Gross annual income | Max all-in payment | Supports a home price of about |
|---|---|---|
| $60,000 | $1,400 | ~$175,000 |
| $80,000 | $1,865 | ~$230,000 |
| $96,000 | $2,240 | ~$278,000 |
| $120,000 | $2,800 | ~$348,000 |
| $150,000 | $3,500 | ~$434,000 |
(Assumes 20% down, taxes + insurance around 0.3% of home value monthly, and no other debts.) If you have a $500 car payment, subtract roughly $90,000 from every row — debt eats affordability faster than most people expect.
Four levers that change your number more than income does
- Rate. Every 1% drop in mortgage rate adds roughly 10% to what you can afford at the same payment. The same $2,240 supports about $283,000 at 5.5% versus $257,000 at 6.5%.
- Down payment. Crossing 20% removes PMI and shrinks the loan. The Down Payment Calculator shows exactly when that threshold pays off — sometimes waiting 8 months to save 5% more is worth more than buying now.
- Term. A 15-year loan roughly doubles your payment but cuts total interest by more than half. Affordability drops; wealth-building doesn’t.
- Debt payoff. Killing a $400/month car payment before applying raises your capacity by more than a $7,000 raise would. Paying off debt is the cheapest affordability boost there is.
A 5-step reality check before you shop
- Take your net monthly income (what actually hits the bank).
- Subtract your real debts and fixed obligations.
- Assume housing costs = gross × 26%, not 28%.
- From that, subtract taxes, insurance, HOA and PMI estimates for your target area.
- Whatever remains is your true principal-and-interest budget — plug it into a mortgage calculator to get the price range.
If the number that comes out feels tight, it is. Houses come with furnaces that die in January.
FAQ
Is the 28/36 rule still used in 2026? Yes — it’s the framework behind most conforming-loan underwriting, though automated approvals frequently stretch the back-end ratio to 45–50% for strong credit profiles. Stretching the ratio means stretching the risk: yours, not the lender’s.
Should I use my pre-approval amount as my budget? Treat it as a ceiling, not a target. Budget 10–15% below it and verify the full payment (PITI + HOA) fits your net income.
How much does a car payment hurt my buying power? Roughly $90,000 of purchase price per $500/month of debt at current rates, because that money can’t go toward housing and still satisfy the 36% back-end limit.
What if I have no other debt? Then your front-end 28% is the binding limit, and your back-end allowance is unused. This is why debt-free buyers can afford meaningfully more house at the same income.