Fazlur Rahman
How much house you can afford is the most important financial question most people will ever answer, and the right answer is not the one the lender approves but the one that lets you sleep at night. The lender will approve a mortgage based on your debt-to-income ratio, your credit score, and your down payment, and the approved amount is the maximum the lender thinks you can pay, not the maximum you should pay. The right amount to spend is the one that fits your complete financial picture, including retirement savings, college savings, emergency fund, and discretionary spending. This guide walks through the actual math, the hidden costs, and the right way to think about the biggest purchase most people will ever make.
Income and price figures cited are illustrative examples based on 2026 mortgage rates (approximately 6.50% for a 30-year fixed on a 740+ credit score as of October 2026), median property tax and insurance rates, and the 28/36 rule. Your actual numbers will vary by region, by credit score, by down payment, and by the prevailing interest rate at the time you apply. Verify with a mortgage calculator (Fannie Mae, Freddie Mac, or your lender's pre-approval tool) before you make an offer, because rates can move 0.5% to 1% in a 6-month period and the payment difference is significant.
How Much House Can You Afford at a Glance
The table below summarizes the 2026 affordable house price by gross household income, under the conservative 25% rule and the standard 28/36 rule. The calculations assume a 30-year fixed mortgage at 6.50%, a 20% down payment, property taxes of 1.2% of the home value, homeowners insurance of $1,800 per year, and no other debt. Your numbers will vary based on the prevailing interest rate, your down payment, your property tax rate, and your other debts.
| Household income | 25% rule (conservative) | 28/36 rule (standard) | Monthly payment at 25% | Monthly payment at 28% |
|---|---|---|---|---|
| $50,000 | $170,000 | $205,000 | $1,040 | $1,165 |
| $75,000 | $260,000 | $310,000 | $1,560 | $1,750 |
| $100,000 | $345,000 | $415,000 | $2,080 | $2,330 |
| $125,000 | $435,000 | $520,000 | $2,600 | $2,915 |
| $150,000 | $520,000 | $625,000 | $3,125 | $3,500 |
| $200,000 | $695,000 | $835,000 | $4,165 | $4,665 |
| $300,000 | $1,040,000 | $1,250,000 | $6,250 | $7,000 |
The 28/36 Rule and How to Use It
The 28/36 rule is the most common rule of thumb for mortgage affordability and is used by most mortgage underwriters as a starting point. The 28% part means your monthly housing costs (principal, interest, property taxes, and homeowners insurance, known as PITI) should be no more than 28% of your gross monthly income. The 36% part means your total monthly debt payments (housing plus student loans, car loans, credit cards, and other debt) should be no more than 36% of your gross monthly income.
The 28/36 rule is a guideline, not a hard limit, and some lenders will approve borrowers above the 36% threshold, particularly for borrowers with high credit scores and large down payments. The 28/36 rule is also conservative for some buyers, particularly dual-income households with stable jobs, and aggressive for others, particularly single-income households with variable income. The right rule of thumb for a buyer is to use 28/36 as a starting point and then to adjust based on their job stability, their other financial goals, and their tolerance for financial stress.
The 25% rule as a more conservative alternative
The 25% rule is a more conservative version of the 28/36 rule, and it limits housing costs to 25% of gross income rather than 28%. The 25% rule is the right call for buyers who are planning to have children, who are planning to save aggressively for retirement, who have variable income (self-employed, commission-based, seasonal), or who want to maintain a meaningful emergency fund. The 25% rule reduces the affordable house price by 10% to 12% compared to the 28/36 rule, which is a meaningful difference in the monthly payment and the long-term interest paid.
What the Lender Will Approve
The lender's pre-approval amount is the maximum the lender thinks the buyer can pay, and it is based on the buyer's debt-to-income ratio, credit score, down payment, and the prevailing interest rate. The lender's pre-approval is the right starting point for the home search, but it is not the right number to use for the actual purchase decision. The right strategy is to take the lender's pre-approval, apply the 28/36 rule or the 25% rule to determine the affordable house price, and then to look for homes in the lower part of the affordable range so the buyer has room to negotiate and room to absorb unexpected costs (repairs, closing costs, moving costs, immediate improvements).
The down payment changes everything
The down payment is the single biggest variable in the affordable house price, because it reduces the loan amount, eliminates private mortgage insurance (PMI) at 20% down, and lowers the monthly payment. A buyer with a $75,000 income and a 20% down payment can afford a $310,000 house under the 28/36 rule; the same buyer with a 5% down payment can afford a $255,000 house because the loan amount is larger, the PMI is added, and the lender requires a higher credit score. The right strategy for most buyers is to save a 20% down payment before buying, which can take 3 to 7 years depending on the buyer's income and savings rate.
The credit score changes the rate
The credit score is the second biggest variable, because it determines the interest rate the lender offers. A buyer with a 760+ credit score gets the best available rates, which can save $100 to $300 per month on a $300,000 mortgage compared to a 680 score. Over 30 years, the difference in interest paid is $40,000 to $100,000, which is real money. The right strategy for a buyer with a score below 680 is to spend 6 to 12 months improving the score before applying, which can be done by paying down credit card balances, disputing errors on the credit report, and avoiding new credit inquiries.
The Hidden Costs of Homeownership
The mortgage payment is the largest housing cost but not the only one, and a buyer who budgets only for the mortgage will be surprised by the other costs. The hidden costs of homeownership include property taxes (1% to 2.5% of the home value per year, depending on the state), homeowners insurance ($1,500 to $3,000 per year), HOA fees ($200 to $500 per month in a planned community), maintenance and repairs (1% to 2% of the home value per year), closing costs (2% to 5% of the loan amount), and moving costs ($1,000 to $5,000 for a local move). A buyer with a $300,000 house should budget $500 to $1,000 per month for these hidden costs on top of the mortgage payment.
Property taxes vary dramatically by state
Property taxes are the largest hidden cost, and they vary from 0.3% of the home value per year in Hawaii to 2.5% in New Jersey, with most states in the 0.8% to 1.5% range. The right way to budget for property taxes is to multiply the home price by the local effective property tax rate and divide by 12 to get the monthly amount. A $300,000 house in Texas (1.7% effective rate) costs $425 per month in property taxes, while the same house in Hawaii (0.3% effective rate) costs $75 per month. The difference is $350 per month, which is meaningful and should be factored into the affordable house price.
Maintenance and repairs are inevitable
Maintenance and repairs run 1% to 2% of the home value per year on average, and the buyer should budget for this from day one. A $300,000 house should budget $3,000 to $6,000 per year for maintenance, which works out to $250 to $500 per month. The first year is usually cheaper than average, but the second decade of homeownership is usually more expensive than average as the roof, the HVAC, and the appliances need replacement. The right strategy is to put the maintenance money in a separate savings account and to use it only for home-related expenses, not for general spending.
Common Mistakes to Avoid
Five mistakes are the most common reason buyers end up house-poor. First, using the lender's pre-approval as the budget, which is the maximum the lender will approve but not the maximum the buyer should spend. Second, buying at the top of the affordable range, which leaves no room for unexpected costs. Third, skipping the home inspection, which can miss thousands of dollars in needed repairs. Fourth, underestimating the hidden costs (property taxes, insurance, HOA, maintenance, utilities), which can add $500 to $1,000 per month to the housing cost. Fifth, taking on a 30-year mortgage when a 15-year mortgage would be affordable, which costs $100,000 to $300,000 in additional interest over the life of the loan. The right strategy is to budget conservatively, buy below the affordable range, and choose a 15-year mortgage if the monthly payment fits.
Bottom Line
A $75,000 income supports a $310,000 house in 2026 under the 28/36 rule, a $260,000 house under the conservative 25% rule. The lender will pre-approve up to the 28/36 amount based on the buyer's debt-to-income ratio, credit score, and down payment, but the right number to budget is the lower of the 28/36 amount and the 25% amount. The hidden costs of homeownership (property taxes, insurance, HOA, maintenance, utilities) add $500 to $1,000 per month, and a buyer who budgets only for the mortgage will be surprised. Verify your specific numbers with a mortgage calculator and a pre-approval, save a 20% down payment before buying, and choose a 15-year mortgage if the monthly payment fits. The right house is the one that lets you hit your other financial goals, not the one the lender is willing to approve.
