Before you fall in love with a listing, it helps to know your real number. Lenders don’t guess at affordability — they run two standard ratios. You can run the same ones yourself in a few minutes.
The 28/36 rule
Most conventional lenders use a version of this guideline:
- 28% — your housing payment (mortgage, tax, insurance, HOA) shouldn’t exceed 28% of your gross monthly income
- 36% — your total debt payments (housing plus car loans, student loans, credit cards, etc.) shouldn’t exceed 36% of your gross monthly income
A worked example
Say your household earns $90,000 a year — $7,500 a month before tax. Under the 28% rule, your maximum housing payment is about $2,100/month. If you already pay $500/month toward a car loan and student loans, the 36% rule caps your total debt payments at $2,700/month, leaving $2,200 for housing — the tighter of the two limits usually wins.
Working backward to a home price
Once you know your maximum monthly payment, you can work backward — subtract an estimate for tax, insurance, and HOA, then see what loan amount the remaining payment supports at current interest rates and your preferred loan term. Add your planned down payment, and you have your realistic home price range.
Three things this formula doesn’t account for
- Maintenance and repairs — budget separately, typically 1–2% of the home’s value per year
- Lifestyle costs — a bigger house often means higher utility bills and furnishing costs
- Future income changes — the ratios use today’s income, not next year’s
Don’t just max out the number
Qualifying for a payment and being comfortable with it are two different things. Many financial planners suggest staying a bit under your maximum qualified amount, especially if your income isn’t perfectly stable.
Skip the manual math — our Affordability Calculator applies both ratios to your actual income and debts and gives you a real home price range in seconds.