House Affordability Calculator

The 28/36 Rule Explained

The 28/36 rule is one of the most widely used guidelines in mortgage lending. It provides a simple framework for determining how much of your income should go toward housing and total debt obligations.

The first number — 28 — represents the front-end DTI ratio: your gross monthly income allocated to housing costs (principal, interest, property taxes, and homeowners insurance, often abbreviated as PITI) should not exceed 28%. So if you earn $6,000 per month before taxes, your maximum housing payment would be $1,680.

The second number — 36 — represents the back-end DTI ratio: your total monthly debt obligations, including housing plus car loans, student loans, credit card minimums, and other recurring debt, should not exceed 36% of gross monthly income. Using the same $6,000 example, total debt payments should stay below $2,160 per month. If you already have $500 in monthly debt payments, your maximum housing payment under the 36% rule becomes $1,660 — potentially lower than the 28% front-end limit.

The calculator above uses both limits and takes the lower of the two to give you the most conservative, lender-realistic estimate of what you can afford. Some lenders allow back-end DTI ratios up to 43–50% under certain loan programs, but staying within the 28/36 boundaries provides a comfortable financial cushion.

What Factors Do Lenders Consider?

When reviewing a mortgage application, lenders look at far more than just your income and existing debts. Understanding what lenders evaluate helps you present the strongest application possible and may improve the interest rate you are offered.

Credit score is one of the most important factors. A score above 740 typically qualifies for the best rates, while scores below 620 may limit you to government-backed loan programs or result in significantly higher interest rates. Improving your credit score even modestly — for example, from 680 to 720 — can save tens of thousands of dollars in interest over the life of a 30-year loan.

Employment history matters as well. Lenders prefer at least two years of steady employment in the same field. Self-employed borrowers face more documentation requirements, typically needing to show two years of tax returns and consistent income.

Cash reserves — savings beyond the down payment — signal financial stability. Many lenders want to see 2–6 months of mortgage payments in reserve after closing. This demonstrates you can handle unexpected expenses without missing payments.

Loan-to-value ratio (LTV) is the loan amount divided by the appraised home value. Lower LTV ratios (meaning larger down payments relative to home price) are viewed favorably by lenders and typically unlock lower rates and eliminate PMI requirements.

Pre-Approval vs. What You Can Actually Afford

One of the most important distinctions for first-time homebuyers is the difference between the maximum loan amount a lender will approve and the amount you should actually spend. Lenders calculate the maximum loan you qualify for based on income and debt ratios — but they do not account for your personal financial goals, savings objectives, lifestyle spending, or future life changes like having children or career transitions.

It is common for buyers to be approved for significantly more than they feel comfortable spending. Being approved for a $500,000 mortgage does not mean a $500,000 home is the right financial choice. Many financial advisors recommend spending 10–20% below your maximum pre-approved amount to leave room in your budget for home maintenance, furnishing, and unexpected life events.

Getting pre-approved before shopping is strongly recommended — it shows sellers you are a serious buyer and gives you a clear budget ceiling — but treat that ceiling as an upper limit, not a target.

The Hidden Costs of Homeownership

First-time homebuyers often underestimate the true monthly cost of owning a home by focusing solely on the mortgage payment. In reality, the total cost of homeownership includes several additional ongoing expenses that must be factored into your budget from the start.

Property taxes vary widely by location but average approximately 1.1% of home value per year in the United States. On a $400,000 home, that is $4,400 per year or about $367 per month added to your effective housing cost. High-tax states like New Jersey, Illinois, and Texas can push property taxes significantly higher.

Homeowners insurance is required by virtually all lenders and typically costs $1,200–$3,000 per year depending on home value, location, and coverage level. Homes in flood zones, hurricane corridors, or wildfire-risk areas will face higher premiums.

Private mortgage insurance (PMI) is required on conventional loans with less than 20% down. PMI typically costs 0.5–1.5% of the loan amount per year. On a $320,000 loan, that is $1,600–$4,800 per year until you reach 20% equity.

Maintenance and repairs are often the most overlooked ongoing cost. The standard rule of thumb is to budget 1% of the home's value per year for maintenance — though older homes or those in harsh climates may require more. A roof replacement can cost $10,000–$25,000; HVAC systems $5,000–$15,000; and foundation issues can run far higher.

Utilities in a home are typically higher than in a rental apartment due to larger square footage. Budget for electricity, gas, water, trash, and internet — which can collectively add $200–$600 per month depending on the size and efficiency of the home.

Closing costs are a one-time but significant expense: typically 2–5% of the purchase price, covering lender fees, title insurance, appraisal, attorney fees, and prepaid property taxes and insurance. On a $350,000 home, closing costs could range from $7,000 to $17,500.

How Down Payment Affects Your Affordability

The size of your down payment has a cascading effect on nearly every aspect of your home purchase. A larger down payment means a smaller loan, which directly reduces your monthly principal and interest payment. It also reduces your loan-to-value ratio, which can qualify you for lower interest rates and eliminate the PMI requirement once you cross the 20% threshold.

Consider two buyers purchasing the same $350,000 home at a 6.5% interest rate over 30 years. Buyer A puts down 10% ($35,000), resulting in a $315,000 loan and a principal-and-interest payment of approximately $1,991 per month, plus roughly $197/month in PMI. Buyer B puts down 20% ($70,000), resulting in a $280,000 loan with a payment of approximately $1,770 per month and no PMI. The monthly difference is over $400, and Buyer B saves over $70,000 in total interest and PMI over the life of the loan.

However, it is important not to exhaust your entire savings on a down payment. Maintaining an emergency fund of 3–6 months of expenses after closing is essential for financial stability. Many first-time buyer programs, FHA loans, and VA loans allow down payments of 3–3.5% or even zero down for eligible veterans, making homeownership accessible even without a large initial deposit.

How to Improve Your Home Buying Power

If the calculator shows a lower affordable price than you hoped for, there are practical steps you can take to increase your home buying power over time. Paying down existing debt — especially high-balance revolving credit card debt — reduces your monthly obligations and improves your back-end DTI ratio, directly increasing the mortgage payment you qualify for.

Improving your credit score by paying bills on time, reducing credit utilization below 30%, and avoiding new credit inquiries can meaningfully lower the interest rate you are offered, increasing the loan amount you qualify for at the same monthly payment. Saving a larger down payment reduces your required loan size and may unlock better loan terms. Finally, increasing your gross income through career advancement, a raise, or additional income streams directly increases the 28% and 36% thresholds used in affordability calculations.