How Much House Can I Afford on My Salary? A Worked Example

Most lenders and housing counselors start with two limits: keep your total housing payment at or below about 28% of your gross monthly income, and keep all your debt payments, including that housing payment, at or below about 36%. The lower of those two numbers is your monthly budget, and the interest rate turns that budget into a price.

This guide walks through each step with real numbers, then covers the cash you need on closing day. To skip the arithmetic, enter your income and debts in the house affordability calculator; for the rule itself, see the 28/36 rule explained. It is general information, not financial advice. Your lender, your local taxes and your own spending decide the final answer.

Step 1: Find your two monthly limits

The 28/36 rule is a guideline, not a law. The Consumer Financial Protection Bureau (CFPB) describes the 28% housing target in its Your Home Loan Toolkit, and adds that lenders may approve you for more or less. Another CFPB worksheet suggests keeping all debts at 36% of income or less, noting that some lenders go to 43% or higher.

The housing payment here means the full monthly cost, often called PITI: principal, interest, property taxes and homeowners insurance. Add private mortgage insurance (PMI) and homeowners association (HOA) dues if you will pay them.

What counts as debt

Your debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. The CFPB’s DTI explainer is clear that different loan products and lenders set different limits, so treat 36% as a comfortable target rather than a hard cap.

Include the minimum payments on:

• car loans and student loans
• credit cards (the minimum payment, even if you pay in full)
• personal loans, child support and alimony
• the new mortgage payment itself

Rent, utilities, phone bills, groceries and childcare usually do not count toward DTI. They still come out of your paycheck, which is why a lender’s maximum can feel tight in real life.

Step 2: Worked example

Say your household earns $90,000 a year before tax and pays $700 a month on a car loan and a student loan.

Your existing debts are what bind here. Paying off the $700 of loans first would lift the limit to the full $2,100.

Turn the budget into a loan amount

Not all of the $2,000 goes to the loan. Suppose property taxes are $300 a month and insurance is $150 a month (check real quotes for the area you want; both vary a lot by state and county). That leaves $1,550 for principal and interest.

The amount you can borrow for a given payment comes from the standard loan formula, rearranged:

Freddie Mac’s weekly survey put the average 30-year fixed rate at 7.40% for the week of October 15, 2026. At that rate, $1,550 a month over 360 payments supports a loan of about $223,866.

With a 20% down payment, the loan is 80% of the price, so the price is $223,866 ÷ 0.80 = about $279,800. The down payment is about $55,966.

How much the rate matters

The same $1,550 buys a very different house at different rates:

At 7.40%, every extra $100 a month of principal and interest supports roughly $14,400 more loan. You can test your own numbers in the mortgage calculator, which shows the payment split between principal, interest, taxes and insurance.

Step 3: Plan the cash you need up front

A lender may approve the payment, but you also need cash at closing.

Down payment

Twenty percent is not required for every loan:

A smaller down payment has a cost. On a conventional loan, the CFPB explains that putting 20% down means PMI is not required. Below 20%, PMI adds to your monthly payment until you can request cancellation at 80% of the home’s original value, or until it ends automatically at 78%. FHA and VA loans have their own insurance or funding fees.

Closing costs

Closing costs cover lender fees, points, appraisal, title, government recording fees and prepaid items such as property taxes, insurance and interest until your first payment (CFPB list). Freddie Mac says they generally range between 2% and 5% of the purchase price.

For the $279,832 home in the example:

Keep an emergency fund on top of this. Moving costs, repairs and furniture arrive in the first months, and a house with no savings behind it is fragile.

Step 4: Decide what you can comfortably afford

The rule gives the ceiling a lender will usually accept. Your comfortable number may be lower. Lower your target if:

• your income varies (commission, freelance, seasonal work)
• you pay for childcare, care for a relative or have high medical costs
• you want to keep saving for retirement at the same rate
• the house is older and will need repairs (a common rule of budgeting is to set money aside every year for maintenance)

Run the numbers both ways: the lender’s maximum, and the payment that still lets you save every month. The gap between them is your safety margin.

Three ways to afford more without stretching

1. Pay down debt first. In the example, clearing $700 a month of loans raises the budget by $100 a month and removes the debt ratio as the limit.
2. Shop for the rate. The table above shows that a lower rate adds tens of thousands to your budget. Compare Loan Estimates from several lenders; the CFPB’s rate explorer shows how rates vary by credit score and down payment.
3. Consider the loan term. A 15-year mortgage has a lower rate but a much higher payment. See our 15 vs 30-year mortgage comparison before you decide.

Once you own the home, extra payments can cut years off the loan. Our guide on how extra payments shorten your mortgage shows how much. For a car or personal loan alongside the mortgage, the loan calculator shows how the payment changes your debt ratio, and the percentage calculator is handy for checking any ratio by hand.

FAQ

What is the 28/36 rule?

It is a common affordability guideline: spend no more than 28% of gross monthly income on housing and no more than 36% on all debts combined. It is a rule of thumb used by lenders and counselors, not a legal requirement.

Do lenders use gross or net income?

Debt-to-income ratios use gross income, before tax. Your take-home pay is lower, so a payment at 28% of gross income is a bigger share of what actually reaches your bank account.

Can I get a mortgage with a DTI above 36%?

Often, yes. The CFPB notes that some lenders go to 43% or higher, and limits differ by loan type. A higher ratio leaves less room for savings and surprises, so a lender’s approval does not mean the payment is comfortable.

How much should I save for closing costs?

Freddie Mac says closing costs generally range from 2% to 5% of the purchase price. Your Loan Estimate, which lenders must give you within three business days of your application, lists the expected figures.

Does the 28% include property taxes and insurance?

Yes. The CFPB’s 28% guideline refers to your total monthly home payment, which includes principal, interest, property taxes and homeowners insurance, plus PMI or HOA dues if you pay them.