How Much House Can I Afford? The Complete Formula for 2026

I remember the first time I seriously sat down to figure out what I could actually afford. The mortgage pre-approval letter said one number, my gut said another, and my spreadsheet? That gave me a third. If you've been there, you're not alone.

Here's the thing most people get wrong: they start by looking at houses, then try to make the math work backwards. That's a recipe for being house-poor. Let's flip the script and start with what your finances can genuinely support.

The 28/36 Rule: Your Starting Point

Almost every lender in the US uses some version of the 28/36 rule when deciding whether to approve your mortgage. It's not a law, but ignoring it will either get your application denied or put you in a tight spot financially.

Take the lower of the two results. That's your realistic ceiling for monthly mortgage + property tax + homeowners insurance.

Step-by-Step: Calculate Your Affordable Home Price

Step 1: Find Your Maximum Monthly Payment

Grab your gross monthly income (before taxes). If you're a W-2 employee, that's your annual salary divided by 12. For freelancers, use your average over the last two years — lenders will anyway.

Example: $85,000/year → $7,083/month gross

• 28% front-end: $7,083 × 0.28 = $1,983/month
• 36% back-end: $7,083 × 0.36 = $2,550 − $400 (car + student loans) = $2,150/month

The binding constraint here is $1,983/month.

Step 2: Subtract Taxes and Insurance

Your monthly payment isn't just mortgage principal and interest. You also need to budget for:

• Property taxes: roughly 1.1% of home value per year nationally (varies wildly by state)
• Homeowners insurance: about $1,500–$2,500/year for a typical home
• PMI: 0.5–1% of loan amount/year if you put down less than 20%

Step 3: Convert to Maximum Loan Amount

For a 30-year mortgage at 6.5%:

• r = 0.065/12 = 0.005417
• n = 360
• Factor = 6.32/1000 (per $1,000 borrowed)

So if your budget for P&I is $1,600/month: $1,600 ÷ 6.32 × 1,000 = $253,165 loan amount.

Step 4: Add Your Down Payment

With a $50,000 down payment: $253,165 + $50,000 = $303,165 maximum home price.

Affordability by Income Level

Here's what different incomes can typically support, assuming a 20% down payment, 6.5% rate, 30-year term, and moderate debts:

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5 Factors That Change Your Number

1. Interest Rate

Every 0.5% increase in your mortgage rate reduces your buying power by roughly 5–6%. At 6% you might afford $350K; at 7%, closer to $310K on the same income. Rate-shopping across 3–5 lenders is probably the highest-ROI hour you'll spend in this process.

2. Down Payment Size

A bigger down payment does three things: increases your max home price dollar-for-dollar, eliminates PMI at 20%+, and gets you a lower rate. But draining your emergency fund for a down payment is dangerous — keep at least 3–6 months of expenses in reserve.

3. Property Tax Rates

New Jersey averages 2.23% while Hawaii sits at 0.32%. On a $400K home, that's the difference between $8,920/year and $1,280/year. Check your target county's rate before committing.

4. Existing Debt Load

That $500/month car payment isn't just costing you $500. It's reducing your home-buying power by roughly $79,000. If you're within a year of paying off a loan, waiting could significantly expand your budget.

5. Credit Score

*Based on $300,000 loan, 30-year fixed

What Lenders Actually Look At

Your income and debts are the headline numbers, but underwriters dig deeper than that. Here's what moves the needle beyond the basic ratios:

1. Employment stability — 2+ years at the same employer (or in the same field) is the sweet spot
2. Cash reserves — they want to see 2–6 months of mortgage payments sitting in your account after closing
3. Debt trajectory — paying down debt shows discipline; taking on new debt right before applying is a red flag
4. Income documentation — W-2s, tax returns, pay stubs. Self-employed? Expect to hand over two years of full returns

Frequently Asked Questions