How much house can I afford?
Quick answer
A common guideline is the 28/36 rule: spend no more than 28% of gross monthly income on housing costs and no more than 36% on total debt payments. On a $100,000 salary, that caps housing at roughly $2,333 per month, which typically supports a home price of about 3-4 times your annual income.
Lenders judge affordability with two ratios. The front-end ratio compares your monthly housing cost — mortgage principal and interest, property taxes, homeowners insurance, and any HOA fees — to your gross monthly income, with 28% as the traditional ceiling. The back-end ratio adds all other debt payments (car loans, student loans, credit card minimums) and should stay under 36%, though many lenders approve up to 43-50% for qualified borrowers.
Your down payment and interest rate dramatically change what a given monthly budget buys. At a 7% rate, a $2,300 monthly principal-and-interest payment supports roughly a $345,000 loan over 30 years; at 5%, the same payment supports about $430,000. A 20% down payment also lets you avoid private mortgage insurance (PMI in the US, or CMHC insurance in Canada), which can add hundreds per month.
Being approved for a mortgage is not the same as being able to afford it comfortably. Lenders do not account for childcare, retirement contributions, travel, or the maintenance costs of homeownership, which typically run 1-2% of the home value per year. Many financial planners suggest keeping your total housing cost at or below 25% of take-home pay to leave room for saving and investing.
Also budget for one-time costs: closing costs usually run 2-5% of the purchase price, plus moving expenses and immediate repairs or furnishings. Keeping an emergency fund intact after closing matters more than stretching to a bigger house.
To find your own number, work backwards from a monthly payment you are comfortable with. A mortgage calculator lets you test different home prices, down payments, rates, and terms until the payment fits your budget with a margin of safety.
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