How Much House Can You Really Afford

A mortgage lender will tell you how much they are willing to lend you. That number is almost always larger than the amount you should borrow. The bank is selling debt and they have decided you can probably pay it back. They have not decided whether you will be happy paying it back. That part is on you.

This guide walks through the actual math behind a home you can afford, the difference between what the calculator says and what daily life says, and why "house poor" is a real failure mode that thousands of pre-approved buyers fall into every year.

The number you are starting from

There are three numbers in this conversation. Mixing them up is most of why people end up over their head.

1. Pre-approval amount. What a lender says they will let you borrow, based on your income, debts, credit, and a rough debt-to-income ratio. This is a ceiling, not a target.
2. The 28/36 rule. A traditional underwriting guideline: housing costs should not exceed 28% of gross monthly income, and total debt payments should not exceed 36%. Lenders sometimes stretch these to 30% and 43% on conforming loans, and even further on government-backed FHA and VA loans.
3. What you actually pay each month. Principal, interest, property tax, homeowner's insurance, HOA fees if applicable, private mortgage insurance if you put down less than 20%. This is the number that hits your bank account.

A bank looking at your file sees the first two numbers. You are the only one who sees the third one.

Working backward from monthly comfort

The cleanest way to figure out what house you can afford is to start with the monthly payment you are comfortable with and work backward. Use the loan calculator and reverse the math.

Pick a monthly payment ceiling that leaves room for the rest of your life. A reasonable starting point is 25% of your gross monthly income, all-in (principal, interest, taxes, insurance, HOA). Below 20% gives you breathing room. Above 30% starts to squeeze.

Here is how the math runs for someone earning $90,000 a year, or $7,500 gross per month:

• 25% of $7,500 = $1,875 monthly housing budget
• Subtract estimated taxes and insurance (varies by location, but figure $400/month as a rough average in the US)
• That leaves about $1,475 for principal and interest

At a 7% 30-year fixed mortgage rate, a $1,475 monthly P&I payment supports a loan of roughly $222,000. Add a 20% down payment of $55,500, and you are looking at a home priced around $277,500.

If rates drop to 5%, the same $1,475 supports a $275,000 loan and a home price closer to $344,000. If rates rise to 8%, you are down to a $201,000 loan and a $251,000 home. Interest rates have an outsized effect on how much house your monthly comfort allows for.

Why pre-approval numbers are higher than this

A lender pre-approving the same $90,000-a-year buyer will often quote a number $50,000 to $100,000 higher than the back-of-envelope above. There are a few reasons:

• They use the 36% debt-to-income ceiling, not your 25% comfort target.
• They use gross income, not the net you actually take home after taxes, retirement contributions, and health insurance.
• They are pricing in the assumption that you have no other goals, only the mortgage.

A lender is not wrong to do this. Their job is to assess whether you will default, not whether you will be happy. The mortgage industry's definition of "affordable" is "you will probably keep paying us." Yours should be higher.

The hidden costs that wreck budgets

People shopping for a house tend to estimate principal and interest carefully and underestimate everything else. The everything else is large.

• Property taxes. In the US, anywhere from 0.3% to 2.5% of home value per year. On a $300,000 home, that is $900 to $7,500 annually. Texas, New Jersey, Illinois are high. Hawaii, Alabama, Colorado are low. Check your specific county.
• Homeowner's insurance. Usually 0.25% to 0.5% of home value per year. Higher in flood, hurricane, or wildfire zones. Roughly $1,200 to $2,500 a year on a $300,000 home.
• Private mortgage insurance (PMI). Required if you put down less than 20%. Costs 0.3% to 1.5% of the loan amount per year. Falls off automatically when you cross 22% equity.
• HOA fees. Range wildly. Suburban developments might charge $200/month. A condo in a high-cost city can charge $800 to $1,200/month and rise every year.
• Maintenance. Plan on 1% to 4% of home value per year over the long run. New homes are at the low end. Older homes, fixer-uppers, and homes in extreme climates run higher. A $300,000 home: $3,000 to $12,000 annually. Most years it is less; the years you replace a roof or HVAC, it is much more.
• Closing costs. 2% to 5% of the purchase price, paid at the time you buy. On a $300,000 home, that is $6,000 to $15,000.

When people say "rent vs buy" the short comparison is misleading because renters pay none of the above. They pay the rent and they leave.

A worked example with all the costs in

Buyer A and Buyer B have identical $90,000 incomes. They are pre-approved for the same $400,000.

Buyer A buys at $385,000 with 5% down. Their monthly costs:

• Principal and interest on $365,750 at 7%: $2,433
• Property tax (1.2% annual): $385
• Insurance (0.35% annual): $112
• PMI (0.8% annual on loan): $244
• Total monthly: $3,174, or 42% of their gross income before maintenance

Buyer B buys at $290,000 with 20% down. Their monthly costs:

• Principal and interest on $232,000 at 7%: $1,544
• Property tax: $290
• Insurance: $85
• PMI: $0 (no PMI required)
• Total monthly: $1,919, or 26% of their gross income before maintenance

Buyer A has more house. They also have $1,255 less in their monthly cash flow than Buyer B. That $1,255 a month, invested at 7% for 30 years, becomes about $1.5 million. Buying the bigger house cost Buyer A more than the price difference. It cost them a different financial life.

The right way to think about a down payment

Conventional wisdom says 20% down. It is conventional because it is the threshold where you avoid PMI and you have meaningful equity from day one. It is not magic.

The actual math:

• Less than 5% down. You can do it through FHA or first-time buyer programs, but PMI is high and you may be underwater if the market dips 5%.
• 5% to 15% down. Affordable for many buyers. PMI applies until you reach 22% equity. Plan to live in the home long enough to build that equity, or refinance once you do.
• 20% down. No PMI, lower monthly payment, lower closing costs as a percentage. Best traditional answer.
• More than 20% down. Saves you interest over the life of the loan but ties up cash. If mortgage rates are below what you can earn on safe investments, large down payments are actively expensive.

In 2026, with mortgage rates around 6 to 7% and savings/treasuries paying 4 to 5%, the gap is real. Putting 25% down instead of 20% might cost less in mortgage interest, but the extra cash you tied up could have earned more elsewhere. The right answer depends on your risk tolerance, your other financial goals, and how long you plan to keep the house.

When the affordability calculator is wrong on purpose

The default calculators you find at most lender websites max out at the lender's comfort, not yours. Use them to find the ceiling. Use the loan calculator and the math above to find what you should actually borrow. The difference will usually be sizable.

A few mental checks before you sign:

• Have you tested the payment in your bank account? Set aside the future mortgage payment minus your current rent for three months. If that hurts, the real thing will hurt more.
• What happens if one of you loses income for three months? A two-earner household relying on both incomes to make the mortgage is fragile.
• Are you optimizing for the wedding or the marriage? A bigger house at the start of a 30-year mortgage is the same financial commitment as a wedding times 360.
• What is the cost of being wrong? Selling a house quickly because you cannot afford it eats 6% to 10% in fees and stress. Renting for an extra year while you save costs much less.

The buyers who never feel house poor are not the ones who maximized. They are the ones who bought 10% to 20% under the ceiling and used the breathing room to do everything else they wanted to do.