How Much House Payment Can I Afford
What You Can Actually Afford Is Not What the Bank Will Lend You
The bank will tell you how much they will lend based on your income and debt. That number is almost always higher than what you should actually spend. A lender looks at one thing: can you make the payment? You need to look at everything else: taxes, insurance, maintenance, utilities, property taxes, and what happens to your life if you lose your job or face an emergency.
Most financial advisors suggest your total monthly housing payment should not exceed 28 percent of your gross monthly income—that is your income before taxes. Some lenders go as high as 43 percent. The difference between those two numbers is the difference between a payment you can handle and a payment that will squeeze every other part of your budget. Start with 28 percent. If you go higher, you are betting that nothing unexpected will happen.
Your housing payment includes more than just the mortgage. It includes property taxes, homeowners insurance, and mortgage insurance if you put down less than 20 percent. Some people forget this and think the payment is only the principal and interest. It is not.
Key Takeaways
- Your housing payment should not exceed 28 percent of your gross monthly income, though lenders often allow up to 43 percent.
- Your housing payment includes the mortgage, property taxes, homeowners insurance, and mortgage insurance—not just the loan itself.
- You also need to budget separately for maintenance, repairs, utilities, and HOA fees, which are not part of the official payment but are real costs of owning a home.
- Use an online calculator to see what payment fits your income, then subtract what you already owe on car loans, credit cards, and student loans to find your actual limit.
- The maximum the bank will lend you is not the same as the maximum you should borrow.
How to Calculate Your Personal Affordability Number
Start with your gross monthly income—the amount you earn before taxes, not your take-home pay. Multiply that by 0.28. That is the maximum your housing payment should be each month.
Example: If you earn $60,000 per year, your gross monthly income is $5,000. Twenty-eight percent of $5,000 is $1,400. That should be your target housing payment ceiling.
Now subtract your other monthly debt payments. This includes car loans, student loans, credit card minimums, and any other regular payments you make. The bank will do this calculation too, and they call it your debt-to-income ratio. If you already owe $300 per month on other debts, your actual housing payment budget drops to $1,100.
This is the number that matters. Not what the bank says you can borrow. What you can actually afford to pay every month without cutting into food, utilities, insurance, or emergency savings.
What Your Housing Payment Actually Includes
When you see a mortgage payment quoted, it often shows only principal and interest. That is incomplete. Your actual payment includes:
- Principal and interest: The loan payment itself.
- Property taxes: Paid to your county or municipality, usually rolled into your mortgage payment. These vary wildly by location—some areas charge 0.5 percent of home value per year, others charge 2 percent or more.
- Homeowners insurance: Required by your lender. Costs vary by location, home age, and claims history, but typically run $800 to $2,000 per year.
- Mortgage insurance (PMI): Required if you put down less than 20 percent. This protects the lender, not you, and costs 0.5 to 1.5 percent of your loan amount per year. You can remove it once you reach 20 percent equity.
- HOA fees: If the property is in a homeowners association, these are mandatory monthly or annual payments for common area maintenance.
Ask the lender for a Loan Estimate form before you commit to anything. It breaks down every cost and shows you the total monthly payment including taxes and insurance. Do not rely on a calculator that shows only principal and interest.
Costs That Are Not in Your Payment but Still Come Out of Your Pocket
Your mortgage payment covers the loan, taxes, and insurance. It does not cover maintenance, repairs, utilities, or improvements. These are real costs that will hit your budget.
Maintenance and repairs average 1 to 2 percent of your home's value per year. A $300,000 home should have $3,000 to $6,000 set aside annually for roof repairs, HVAC service, plumbing, appliance replacement, and the hundred other things that break. If you do not have this money in savings, a single major repair can force you into credit card debt or a home equity loan.
Utilities—electricity, gas, water, sewer, trash—vary by climate and home size but typically run $150 to $400 per month. Internet and phone add another $100 to $200. These are not optional.
If you are stretching to afford the mortgage payment itself, you have no room for these costs. That is when people end up in trouble.
How Much House the Bank Will Actually Lend You
Lenders use a formula called the debt-to-income ratio. They look at your gross monthly income and allow your total monthly debt payments—including the new mortgage—to be up to 43 percent of that income. Some lenders go as low as 36 percent for borrowers with excellent credit and large down payments.
A lender also looks at your credit score, employment history, and savings. If you have a strong credit score and a stable job, you may get approved for the higher end. If your credit is fair or you changed jobs recently, you may be limited to a lower amount.
The bank's number is not a recommendation. It is the maximum they will risk. It assumes you will make the payment even if your car breaks down, your child needs braces, or you face a medical bill. Most people cannot do that comfortably.
The Difference Between What You Can Borrow and What You Should Borrow
If you earn $60,000 per year and have no other debt, the bank might approve you for a $350,000 mortgage. Your payment would be around $1,800 per month (including taxes and insurance). That is 36 percent of your gross income.
But if you follow the 28 percent rule, your payment should be $1,400. That leaves $400 per month for maintenance, utilities, and emergencies. The difference between $1,400 and $1,800 is $400 per month, or $4,800 per year. Over 30 years, that is $144,000 you are not spending on a house payment.
That $400 per month is the difference between a payment you can handle and a payment that will dominate your life. It is the difference between having options and having none.
How to Use Online Calculators Correctly
Many websites offer mortgage affordability calculators. They are useful, but only if you use them the right way. Most calculators ask for your income and show you a maximum loan amount. That maximum is usually based on the 43 percent debt-to-income ratio, not the 28 percent rule.
Use the calculator to see what the bank might lend you. Then manually adjust the loan amount downward until the payment is 28 percent of your gross income. That adjusted number is what you should actually target.
A good calculator also lets you enter your other monthly debts and shows you how they reduce your housing budget. If you have $300 in car payments and $200 in student loans, that $500 comes directly out of your housing payment budget.
What Happens When You Borrow More Than You Should
People who stretch to buy a house often face one of three outcomes: they cut back on everything else, they go into credit card debt to cover other expenses, or they miss payments when an emergency hits.
If you are paying $1,800 per month on a $60,000 annual income, you have very little room for property taxes to increase, insurance to rise, or your job to change. A 10 percent increase in property taxes adds $150 to $200 per month. A job loss or income cut becomes a crisis immediately.
Lenders do not care about this. They care about whether you made the payment this month. You need to care about whether you can make it for 30 years, through job changes, health issues, and the unexpected costs that come with owning a home.
Frequently Asked Questions
What if I have a large down payment—does that change how much I can afford?
A large down payment lowers your monthly payment because you are borrowing less money. It also removes the need for mortgage insurance. But the affordability rule stays the same: your payment should not exceed 28 percent of your gross income. A larger down payment just means you can afford a more expensive house at that same payment level, not that you should stretch further.
Should I use the 28 percent rule or the 43 percent rule?
Use 28 percent as your target. The 43 percent rule is what lenders will allow, not what financial advisors recommend. If you are comfortable at 43 percent and have substantial emergency savings, you can go higher. But 28 percent gives you breathing room for life to happen.
How do I know what property taxes will be on a house I want to buy?
Ask the real estate agent or look up the property on your county assessor's website. Property tax rates vary by location and are public information. Once you know the rate, you can calculate the annual tax and divide by 12 to see the monthly cost. Ask the lender to include this in your Loan Estimate.
What if my income varies month to month?
Lenders typically average your income over the past two years if you are self-employed or work on commission. Use that average as your gross monthly income for the affordability calculation. If your income is unpredictable, use a conservative estimate—the lower number you are confident you will earn most months.
Can I afford a house if I have student loan debt?
Yes, but your student loan payments reduce your housing budget. If you owe $200 per month on student loans, that $200 comes out of your 28 percent housing budget. The lender will count it as debt. If you are considering paying off student loans before buying, run the numbers both ways to see which makes sense for your situation.