Lenders will often approve you for more than you should actually borrow. The maximum mortgage you qualify for and the mortgage you can comfortably afford are two very different numbers. Here's how to find the right one for your situation.
The 28/36 Rule
The 28/36 rule is a longstanding affordability guideline: your housing costs (PITI — principal, interest, taxes, insurance) should not exceed 28% of your gross monthly income, and your total debts should not exceed 36% of gross monthly income.
| Gross Monthly Income | Max Housing (28%) | Max Total Debt (36%) |
|---|---|---|
| $5,000 | $1,400 | $1,800 |
| $7,500 | $2,100 | $2,700 |
| $10,000 | $2,800 | $3,600 |
| $15,000 | $4,200 | $5,400 |
What PITI Includes
Most people focus only on principal and interest, but the full cost of owning a home includes much more:
- Principal & Interest: The base mortgage payment to your lender.
- Property Taxes: Averaged monthly (varies 0.3%–2.5% of home value annually by location).
- Homeowners Insurance: Typically $100–$250/month.
- PMI: If your down payment is under 20%, PMI adds 0.5%–1.5% of the loan amount annually.
- HOA Fees: Can range from $50 to $1,000+/month in condos or planned communities.
The Real Cost: Beyond PITI
First-time buyers often underestimate the ongoing costs of ownership. Budget for these beyond your mortgage payment:
- Maintenance & Repairs: Budget 1%–2% of home value per year ($3,000–$6,000 on a $300,000 home).
- Utilities: Heating, cooling, water, trash — often $200–$600/month depending on climate and home size.
- Lawn Care & Snow Removal: $50–$300/month if not DIY.
- Appliance Replacement: Expect to budget $500–$1,000/year for aging systems.
Being house-poor means spending so much on housing that you have little left for savings, emergencies, or lifestyle expenses. A good rule of thumb: your housing costs should leave you enough to save at least 10–15% of take-home pay and fund a 3–6 month emergency fund.
A Simple Affordability Formula
Multiply your gross annual income by 3–4 for a conservative estimate of how much home you can afford. At a 7% interest rate, $100,000 in income supports roughly $300,000–$400,000 in home price. As rates rise, purchasing power drops — at 8%, the same income supports about $60,000–$80,000 less.
Try the Nesterfy Affordability Calculator to get a personalized estimate based on your income, debts, down payment, and local tax rates.