How Much House Can You Afford?

The debt-to-income rule

Most lenders want your total monthly debt payments — including the new mortgage — to stay under about 36% of your gross monthly income. This is the back-end DTI ratio. A softer version, the 28/36 rule, says your housing payment alone shouldn't exceed 28% of gross monthly income, and all debts combined shouldn't exceed 36%.

Start from your income. If you earn $85,000/year, your gross monthly income is $7,083. The 28% housing limit gives you $1,983/month for principal, interest, taxes, and insurance. The 36% total-debt limit gives you $2,550 for all debt combined — so if you have a $400/month car payment and a $200/month student loan, your housing budget shrinks to $1,950.

Some lenders allow up to 43% DTI, especially on FHA loans. But pushing to the limit leaves no room for property tax increases, repairs, or income drops. The 28/36 framework is a guardrail, not a goal.

What the payment includes (PITI)

A mortgage payment is more than principal and interest. Lenders quote it as PITI — four pieces that together determine what you actually pay monthly:

• Principal & Interest — the loan repayment itself. On a $300,000 loan at 7% for 30 years, this is about $1,996/month. Interest dominates early in the loan; principal grows as the balance shrinks.
• Taxes — property tax, paid monthly into escrow. The national average is about 1.1% of home value per year, but it varies from 0.28% in Hawaii to 2.13% in New Jersey. On a $340,200 home, that's roughly $3,742/year or $312/month.
• Insurance — homeowners insurance, typically $1,000–3,000/year depending on location, construction, and coverage. In high-risk areas (hurricane, wildfire), rates can double or triple.
• PMI — private mortgage insurance if your down payment is less than 20%. It typically costs 0.3%–1.5% of the loan annually. On a $272,000 loan (20% down on a $340,000 home — wait, 20% down means no PMI). On a $306,000 loan (10% down), PMI might add $100–200/month.

How interest rate changes everything

The interest rate is the single biggest lever on what you can afford. At 7% on a 30-year fixed, a $300,000 loan costs $1,996/month in principal and interest. At 5%, the same loan costs $1,610 — a $386/month difference, or $138,960 over 30 years.

Working backwards from a monthly budget: at 7%, a $2,000 P&I budget buys a loan of about $301,000. At 5%, the same $2,000 buys a $372,000 loan. That's a $71,000 difference in purchasing power from a 2% rate change — with the same income and the same monthly payment.

This is why rate-shopping matters. A 0.5% rate difference on a $300,000 loan is about $100/month — $36,000 over 30 years. Our mortgage calculator lets you see exactly how rate and term change your payment.

The down payment tradeoff

A larger down payment reduces your loan size and your monthly payment, but it also ties up cash that could go to other uses. The traditional 20% down payment on a $340,200 home is $68,040 — a significant sum. Putting 10% down ($34,020) means a larger loan and PMI, but keeps $34,020 in your pocket.

PMI isn't permanent — it drops off automatically when your loan balance reaches 78% of the original home value, or you can request removal at 80% LTV. On a typical loan, that takes 5–10 years of payments plus appreciation.

FHA loans allow as little as 3.5% down, but carry mortgage insurance premiums for the life of the loan (in most cases). VA and USDA loans offer 0% down for eligible borrowers. Each program trades a lower upfront cost for different long-term costs or eligibility requirements.

Property tax by state — a hidden cost

Property tax varies enormously by state, and it's part of your PITI every month. The national average effective rate is about 1.1% of home value. On the $340,200 national median home, that's $3,742/year.

But the range is wide. New Jersey averages 2.13% — $7,246/year on that same home. Hawaii averages 0.28% — $953/year. Texas, which has no income tax, compensates with property taxes around 1.7–1.8%. When comparing cities, property tax can swing your monthly housing cost by hundreds of dollars even with the same home price.

Our city pages don't currently track property tax separately (it varies by county and school district within a state), but you should factor it in. A $1,800/month mortgage with a $400/month property tax escrow is a $2,200/month housing cost, not $1,800.

Find your number

Enter your income, debts, and down payment to estimate a realistic home price and payment. The home affordability calculator uses the 28/36 rule and current rates to show you a purchase price that fits your budget — not the maximum a lender will approve, but what actually makes sense.