How Much House Can You Afford? (2025 Guide)

Buying a house is exciting — but stressful when you don’t know what price range is realistic. This guide breaks down the exact numbers lenders look at (and the numbers you should look at) so you can avoid overpaying, overborrowing, or getting stretched too thin.

Start With Your Budget, Not the Bank

The biggest mistake buyers make is asking, “How much will the bank lend me?” instead of “How much can I comfortably pay every month without stress?” Lenders are focused on whether you can technically make payments. You should be focused on whether you can make those payments and still live your life.

A mortgage that looks fine on paper can feel crushing in real life once you factor in groceries, kids, travel, hobbies, and saving for the future. That’s why we start with monthly affordability first, then translate that into a home price.

Common Rules of Thumb (And What They Really Mean)

There are a few popular shortcuts people use to answer “How much house can I afford?”:

• 28% rule: Keep your total housing payment (mortgage, taxes, insurance, HOA) at or below 28% of your gross monthly income.
• 36% rule: Keep your total debt payments (housing + car loans + student loans + credit cards) at or below 36% of your gross monthly income.
• “2.5–3x income” rule: Aim for a purchase price roughly 2.5 to 3 times your annual household income.

These are useful starting points, but they don’t know your childcare costs, your car replacement plan, your savings goals, or how you feel about risk. So instead of treating them as strict limits, use them as guardrails and then adjust for your real life.

Step 1: Define a Comfortable Monthly Housing Budget

Begin with what you’re already used to paying. If you currently rent:

• Write down your monthly rent.
• Write down your utilities, renter’s insurance, and any parking or HOA-type fees.

That’s your baseline monthly housing cost today. Now ask:

• Could you comfortably handle paying 10–20% more each month?
• Or would staying at your current level (or even slightly lower) feel safer?

Pick a number that lets you save for emergencies, retirement, and short-term goals without feeling squeezed. For many people, this ends up somewhere between 25–30% of gross income, but your situation may differ.

If you earn $6,000 per month before taxes, 28% is $1,680. If your current rent is $1,400 and it feels comfortable, you might target a mortgage payment (including taxes and insurance) in the $1,500–$1,700 range.

Step 2: Look at Your Debt-to-Income (DTI) Ratio

Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward debt payments. Lenders care about it a lot, and you should too.

DTI formula:

DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

Total monthly debt payments include: your future housing payment (principal, interest, taxes, insurance, HOA) plus any car loans, student loans, minimum credit card payments, personal loans, and other recurring debts.

Many traditional lenders prefer:

• Front-end DTI (housing only): ≤ 28%
• Back-end DTI (housing + all other debts): ≤ 36–43%, depending on the program

If your DTI is already high from car loans or other debts, the maximum mortgage you qualify for may be lower than what rules of thumb suggest. If your DTI is low and you have no other debts, you may have more room — but that doesn’t mean you must use it all.

Step 3: Convert Your Monthly Budget Into a Target Home Price

Once you know your comfortable monthly payment and have a sense of your DTI limits, you can translate that into a purchase price. There are four major factors that determine how much house you can afford:

• Your down payment
• Your mortgage interest rate
• Property taxes in your area
• Homeowners insurance + HOA fees

The mortgage part of the monthly payment is determined by the standard loan formula:

Mortgage Payment = P × (r(1+r)n) / ((1+r)n − 1)

Where:

• P = loan amount (price minus down payment)
• r = monthly interest rate (APR ÷ 12)
• n = number of payments (360 for a 30-year loan)

But don’t worry — you don’t need to do the algebra. Here’s how it works in real numbers.

Example: $6,000 Monthly Income

Let’s assume:

• Income: $6,000/month
• Comfortable housing budget: $1,600–$1,800/month
• Down payment: $20,000
• Interest rate: 6.5%
• Property tax estimate: 1.1% of home price per year
• Homeowners insurance: $100/month

Breakdown of Your Monthly Budget

Let’s say your target total monthly housing payment is $1,700.

Your non-mortgage costs might look like this:

• Taxes: roughly $240/month on a $260K home
• Insurance: $100/month
• HOA (if applicable): $0–$100/month

This means your actual mortgage portion needs to fit into:

$1,700 − ($240 + $100) = roughly $1,360/month

How Much House Does That Buy?

With a mortgage payment budget around $1,360/month at 6.5% interest, the loan amount you can support is roughly $235,000.

Add your $20,000 down payment:

≈ $255,000 home price

Faster Rule of Thumb (Easy Mental Math)

If you want a simple way to estimate:

• Every $100 of mortgage payment ≈ $16,000–$18,000 of home price at 6–7% rates
• Every extra $10,000 of down payment increases affordability by roughly $10,000

So if your mortgage budget is $1,360/month, you can quickly estimate: $1,360 × $17K ≈ $231,000 loan, plus down payment.

Your Real Affordability Range

Instead of targeting a single number, it’s smart to think in terms of a band:

• Comfort zone: $230,000–$260,000
• Stretch zone: $270,000–$290,000
• No-go zone: Anything that pushes you above 30% of gross income or raises your DTI above your lender’s limit

Homes in the comfort zone allow you to save and enjoy your lifestyle. Homes in the stretch zone are possible but require intentional budgeting. Homes above that become risky long-term — especially when rates or taxes rise.

Step 4: Understand How Mortgage Type Changes What You Can Afford

Not all mortgages calculate affordability the same way. The type of loan you choose can raise or lower the home price you qualify for, even with the exact same income.

Conventional Loan

Best for financially stable buyers with decent credit. PMI applies if you put down less than 20%, which increases your monthly payment.

• Minimum down: 3%
• Credit score target: 680+
• Impact on budget: PMI can add $120–$250/month

FHA Loan

More flexible but comes with mortgage insurance premiums (MIP) that last for many years. Helpful for first-time buyers with lower down payments.

• Minimum down: 3.5%
• Credit score target: 580+
• Impact on budget: MIP adds $100–$200/month

VA Loan (For Eligible Veterans)

Zero down payment and no mortgage insurance make this the most affordable option for qualifying service members.

• Minimum down: $0
• Credit score target: 620+
• Impact on budget: Lower monthly payment = higher affordability

USDA Loan (Rural Areas)

Zero down, low interest, and designed for lower-to-moderate income households in qualifying areas.

The key takeaway: Your loan type directly impacts the price of the home you can afford.

Step 5: Down Payment — How Much Should You Put Down?

Your down payment is the fastest way to increase affordability. The more you put down:

• Your loan gets smaller
• Your monthly payment drops
• You pay less interest long-term
• You may avoid PMI completely

Common Down Payment Benchmarks

• 5% down: Entry point, higher PMI
• 10% down: Lower PMI, better loan terms
• 20% down: Avoid PMI completely
• 25%+ down: Lenders may offer better rates

If you are close to a higher tier (for example, 18% down → 20% down), it’s almost always better to save a bit longer and avoid PMI.

Step 6: Interest Rate Sensitivity — Why Rates Matter More Than Price

Your interest rate affects affordability more than almost anything else. Even a 1% change in APR can raise or lower your mortgage payment by hundreds per month.

Example: $300,000 Mortgage

• 5.5% APR: ≈ $1,703/month
• 6.5% APR: ≈ $1,896/month
• 7.5% APR: ≈ $2,097/month

That means:

• Going from 5.5% → 6.5% = +$193/month
• Going from 5.5% → 7.5% = +$394/month

Many buyers focus on price — but the real limiter is monthly payment sensitivity to rates.

Step 7: Major Affordability Traps to Avoid

These are the mistakes that lead to financial stress, and they’re extremely common among first-time buyers. Avoid them at all costs:

❌ Trap #1: Calculating Affordability Off Your Maximum Pre-Approval

Lenders approve you based on risk — not comfort. They don’t know your lifestyle, priorities, or long-term plans. Your pre-approval is the ceiling, not the target.

❌ Trap #2: Ignoring Taxes & Insurance

Property taxes can vary by $300–$600/month depending on the county. Insurance adds another $100–$200/month. Ignore these, and you’ll dramatically overestimate your budget.

❌ Trap #3: Underestimating Maintenance Costs

A good rule: budget 1% of the home price per year for maintenance. For a $300K home: ~$3,000/year or $250/month.

❌ Trap #4: Assuming You’ll “Grow Into the Payment”

Future raises aren’t guaranteed. Monthly payments are. Buy for the life you live today — not the one you hope for later.

❌ Trap #5: Buying at the Top of Your Budget in a High-Tax Area

Two homes with the same price can have wildly different taxes. A $300K home in one zip code might cost as much monthly as a $350K home in another.

Smart buyers look at both the price and the monthly cost structure.

Step 8: Translate This Into Action

To turn all of this into a clear plan, walk through these steps in order:

1. Calculate your gross monthly income.
2. List all current debts and their monthly payments.
3. Decide on a comfortable housing budget (not just what a bank will approve).
4. Estimate taxes, insurance, and HOA in your target area.
5. Use a mortgage or loan calculator to see what home price fits inside that budget.
6. Stress-test your plan:
   • What if rates rise by 1% before you close?
   • What if property taxes increase over time?
   • What if your income drops for a few months?

If the numbers still feel comfortable after stress-testing, you’re likely in a realistic affordability range.

Using FinFormulas to Run Your Own Scenarios

You don’t have to guess or run these numbers in a spreadsheet. You can use the tools on FinFormulas to explore different “what if” scenarios:

• Start with the Mortgage Calculator to plug in price, rate, and down payment.
• Use the Budget Calculator to see how a new housing payment fits with the rest of your spending.
• Try the Savings Calculator to make sure you’re still on track for an emergency fund and future goals.

Run a conservative scenario (lower price, higher rate) and a stretch scenario (higher price, slightly lower rate). Your sweet spot is usually where:

• You can still save consistently every month
• Your DTI stays inside lender limits
• You’d feel okay if an unexpected bill showed up

Bottom Line: How Much House Should You Afford?

The real question isn’t “How much house can I technically qualify for?” — it’s “What home price lets me build a life I actually enjoy, without money stress?”

For most people, that means:

• Housing around 25–30% of gross income
• A total DTI that leaves room for saving and living
• A payment that still feels okay after stress-testing for higher taxes or rate changes

If you use those guardrails, run a few scenarios, and stay honest about your lifestyle, you’ll land on a price range that fits not just the bank’s rules — but your real life.

Educational only — not financial advice. Before making major borrowing decisions, consider speaking with a qualified financial professional or housing counselor.

---

Ready to run the numbers for your own situation? Start with the Mortgage Calculator or explore all FinFormulas Calculators.