The standard answer to “how much house can I afford?” comes from the 28/36 rule that lenders use to qualify borrowers. But qualifying and affording are two different things.
The 28/36 Rule
28% rule: Your total housing costs (PITI — principal, interest, taxes, insurance) should not exceed 28% of your gross monthly income.
36% rule: Your total debt payments (housing + car loans + student loans + credit cards + any other debt) should not exceed 36% of your gross monthly income.
Example at $85,000 Gross Income
| Monthly | Annual | |
|---|---|---|
| Gross income | $7,083 | $85,000 |
| Max housing (28%) | $1,983 | $23,800 |
| Max total debt (36%) | $2,550 | $30,600 |
With $1,983 per month for PITI, at a 6.8% rate and 20% down, you qualify for roughly a $310,000 home (varying by state due to tax and insurance differences).
Why the 28% Number Is Often Too High
The 28/36 rule uses gross income, not net. After federal and state taxes, retirement contributions, and health insurance premiums, your take-home is typically 65-75% of gross.
On $85,000 gross:
- Take-home (after taxes, retirement, health): roughly $5,000/month
- Housing at $1,983/month = 40% of take-home pay
That leaves $3,017 for everything else: food, transportation, childcare, utilities beyond what’s escrowed, savings, entertainment, clothing, and unexpected expenses. For a family, that’s tight.
A more comfortable target: 25% of gross income for housing, which aligns to roughly 33-35% of take-home.
PITI Isn’t Your Full Housing Cost
The 28% calculation only covers principal, interest, property tax, and insurance. It doesn’t include:
- Maintenance: 1-1.5% of home value per year
- Utilities: Electricity, water, sewer, trash ($200-$400/month)
- HOA fees: $200-$600/month if applicable
- Replacement reserves: $200-$300/month for roof, HVAC, etc.
- PMI: $150-$400/month if less than 20% down
When you add these, your actual housing cost is 35-50% higher than PITI alone.
The Down Payment Factor
The size of your down payment directly affects affordability:
| Down Payment | Loan on $350K Home | Monthly P&I (6.8%) | PMI |
|---|---|---|---|
| 3% ($10,500) | $339,500 | $2,215 | $283/mo |
| 5% ($17,500) | $332,500 | $2,169 | $277/mo |
| 10% ($35,000) | $315,000 | $2,055 | $175/mo |
| 20% ($70,000) | $280,000 | $1,826 | None |
The difference between 3% and 20% down is $389/month in P&I alone, plus PMI savings. Over 30 years, the lower down payment costs over $140,000 more in total interest.
Run Your Personal Numbers
The HomeStats affordability calculator factors in your specific income, debts, down payment, and the actual tax and insurance rates for your target state.
Check state pages for local property tax rates, insurance costs, electricity prices, and trade labor rates that affect the total cost of ownership beyond the mortgage.
For the complete framework on what homes really cost and whether buying makes sense for your situation, read The Resale Trap.