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Lenders tell you how much they will loan you, but that is not the same as how much house you should buy. Banks approve mortgages up to a 43% to 50% debt-to-income ratio, and spending that much on housing leaves almost no margin for savings, emergencies, or life. Here is how to figure out what you can actually afford without stretching into financial fragility, with the rules that hold up in 2026.
Key Takeaways
- The bank’s maximum is not your budget. Lenders approve based on your ability to pay, not to save or live.
- The 28/36 rule is the practical benchmark: housing under 28% of gross income, total debt under 36%.
- Include the hidden costs: taxes, insurance, HOA, maintenance, and PMI, not just principal and interest.
- Keep your emergency fund after closing, since early home repairs are inevitable.
The 28/36 Rule
The most widely used affordability benchmark has two parts:
- 28% front-end ratio: your total monthly housing cost (mortgage principal and interest, property taxes, insurance, and HOA) should stay under 28% of your gross monthly income.
- 36% back-end ratio: your total monthly debt (housing plus car loans, student loans, credit cards, and other debt) should stay under 36% of gross monthly income.
The table below shows the maximum home price the 28% rule allows at different incomes, using an example 6% rate with 10% down, including taxes at 1.2% and insurance. Note that current rates are closer to 6.4% as of mid-2026, which would lower these figures somewhat, so treat them as a starting point and run your own numbers.
| Gross annual income | Max monthly housing (28%) | Max home price (example) |
|---|---|---|
| $60,000 | $1,400 | ~$210,000 |
| $80,000 | $1,867 | ~$280,000 |
| $100,000 | $2,333 | ~$350,000 |
| $130,000 | $3,033 | ~$455,000 |
| $160,000 | $3,733 | ~$560,000 |
If your area has higher property taxes or you will need PMI, reduce these estimates accordingly. See our guide to types of mortgages in 2026 to compare loan options.
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Why the Bank’s Number Is Higher Than Yours Should Be
Banks approve you based on your ability to make the payment, not your ability to save, invest, handle emergencies, or enjoy your life. If a lender approves a 45% DTI, that means 45% of your gross income goes to debt, and after taxes you might have only 30% to 35% of your gross left for everything else: food, transportation, utilities, savings, retirement, and emergencies.
The 28/36 rule is deliberately more conservative. Housing costs are fixed and recurring, so if you stretch to 40% DTI for a dream home, a single job loss, medical bill, or major repair can cascade into missed payments and real stress. Leaving margin is what keeps a home from becoming a trap.
Hidden Costs That Inflate the True Price
The mortgage payment is not the full cost of owning. When you calculate affordability, include:
- Property taxes. These vary widely, from around 0.3% in Hawaii to roughly 1.8% in Texas and 2.2% in New Jersey. On a $350,000 home in Texas, that is about $6,300 a year, or $525 a month.
- Homeowners insurance. Often $150 to $300 a month depending on location and coverage, and rising in many areas.
- HOA fees. Anywhere from $200 to $800 a month where they apply, and they count in your front-end ratio.
- Maintenance. Budget 1% to 2% of the home’s value a year. On a $350,000 home that is $3,500 to $7,000, and deferring it just turns into bigger repairs.
- PMI. With less than 20% down, this adds roughly 0.5% to 1.5% of the loan amount a year until you reach 20% equity.
How Much to Save for a Down Payment
- 3% to 3.5% (FHA or low-down conventional): the lowest barrier to entry, but it requires mortgage insurance. Good if you have stable income but limited savings and want to buy sooner.
- 10%: reduces your loan and PMI meaningfully and is achievable for many with a couple of years of focused saving. A solid balance of accessibility and cost.
- 20%: eliminates PMI and gives the lowest payment and total cost, but takes the longest to save. Best if you are patient.
For a plan to get there, see our guide on how to save for a down payment fast.
Keep Your Emergency Fund After Closing
Do not drain your emergency fund for the down payment. After closing, you need liquid savings for the early expenses that always come: an appliance that dies in month two, a roof repair, an HVAC failure in summer. Most advisors suggest keeping 3 to 6 months of expenses after closing, separate from the down payment.
So your real savings target is the down payment plus closing costs (2% to 5% of the price) plus a 3 to 6 month emergency fund. For a $350,000 home with 10% down, that is about $35,000 down, plus roughly $10,500 in closing costs, plus a $15,000 to $25,000 emergency fund, for a total of about $60,500 to $70,500 before buying.
FAQ
What is the 28/36 rule?
Keep housing costs under 28% of gross monthly income and total debt payments under 36%. It is a practical, more conservative benchmark than the maximum a bank will approve.
Why does the bank approve me for more than I can afford?
Lenders only check your ability to make the payment, not your ability to save, invest, or handle emergencies. Their maximum leaves little room for the rest of your life.
What costs do people forget when budgeting for a home?
Property taxes, insurance, HOA fees, ongoing maintenance (1% to 2% of value a year), and PMI if you put less than 20% down.
Should I use my emergency fund for the down payment?
No. Keep 3 to 6 months of expenses after closing, since early repairs are common. Budget the down payment, closing costs, and emergency fund separately.
Bottom Line
How much house you can afford is not the bank’s maximum, it is the 28/36 rule applied to your full cost of ownership. Include taxes, insurance, HOA, maintenance, and PMI, keep your housing under 28% of gross income, and protect your emergency fund through closing. Buying a little less house than you qualify for is how you keep a home a source of stability rather than stress. Still weighing the decision? See our rent versus buy breakdown.
This article is for educational and informational purposes only and is not financial or lending advice. Figures are illustrative, and rates, taxes, and costs vary by location and change over time. Run your own numbers and consider a qualified professional before buying.
