How Much House Can I Afford? A Practical Guide

"How much house can I afford?" is the most important question in homebuying — and the most commonly answered wrong. Online calculators spit out a big exciting number, buyers fall in love with houses at the top of it, and then the real monthly payment (taxes, insurance, HOA, maintenance) arrives like a second rent they didn't budget for.

This guide gives you the honest math: the rules lenders use, the costs buyers forget, and how to find a number you can actually live with. When you're ready to run scenarios, Utilo's free mortgage calculator includes taxes, insurance, HOA, and PMI — the full payment, not just principal and interest.

Start with the 28/36 rule

Lenders have used the 28/36 rule for decades, and it's still the best quick sanity check available:

• 28%: Spend no more than 28% of your gross (pre-tax) monthly income on total housing costs.
• 36%: Spend no more than 36% of gross monthly income on all debts combined — housing plus car loans, student loans, credit card minimums.

Example: a $100,000 salary is $8,333/month gross. Twenty-eight percent is $2,333/month for housing; 36% is $3,000 for all debts. If you already pay $600/month in car + student loans, your housing budget under the 36% rule is $3,000 − $600 = $2,400 — the tighter of the two caps wins.

Important: these are maximums, not targets. Just because a lender approves you at 28% doesn't mean you'll be comfortable there — especially if you have irregular income, thin savings, or expensive childcare.

Housing cost means PITI, not just the mortgage

The biggest rookie mistake is comparing the 28% budget to principal + interest only. Your real monthly housing cost is PITI:

• Principal & Interest — the loan itself.
• Taxes — property taxes, which range from under 0.5% to over 2% of home value per year depending on the state. On a $350,000 home, that's anywhere from $150 to $600+/month.
• Insurance — homeowners insurance, typically $100–$250/month, higher in hurricane, wildfire, and flood zones.

Plus, where applicable: HOA fees ($200–$500/month is common for condos) and PMI (see below). A $1,600 principal-and-interest payment easily becomes $2,300+ all-in. Our full PITI guide breaks down estimating each piece.

What lenders actually look at

Beyond the ratios, lenders evaluate four things:

• Debt-to-income (DTI) ratio. The 36% number above. Conventional loans typically cap DTI at 45–50%; FHA allows up to about 57% with compensating factors. Lower is always better — for your rate and your life.
• Credit score. 620 is the rough floor for conventional loans; 740+ unlocks the best rates. A half-point of rate difference on a $350,000 loan costs roughly $100/month — $36,000 over 30 years.
• Down payment. More down = smaller loan = lower payment, and crossing 20% eliminates PMI.
• Cash reserves. Lenders (and prudence) want to see several months of payments saved after closing costs. Don't drain every account for the down payment.

The 20% down payment myth (and PMI)

You do not need 20% down to buy. Conventional loans go as low as 3–5% down; FHA loans allow 3.5%; VA and USDA loans allow zero down for those who qualify. The 20% figure matters because of PMI — private mortgage insurance: with less than 20% down on a conventional loan, you'll pay roughly $30–$70 per $100,000 borrowed, per month, until you reach 20% equity.

PMI isn't pure waste — it buys you years of homeownership (and appreciation) sooner — but factor it into the monthly number honestly. FHA loans have their own mortgage insurance (MIP) with different rules, including an upfront premium. Run both scenarios in the mortgage calculator to see exactly what PMI does to your payment.

The costs buyers always forget

• Closing costs: 2–5% of the purchase price, due at signing. On $350,000, that's $7,000–$17,500.
• Maintenance: budget 1–2% of the home's value per year ($3,500–$7,000 on that same home). Roofs, HVAC, plumbing — they all fail eventually, and landlords aren't coming to fix them anymore.
• Moving and setup: movers, utility deposits, immediate repairs, furniture for rooms you didn't have before. $3,000–$10,000 disappears fast.
• Lifestyle creep: the bigger house needs more furniture, more heating, more everything. Budget it.

A useful stress test: can you still afford the payment if one income drops 20%, or if rates rise 1% before you lock? If the answer is no, you're shopping too high.

Run your real numbers

Theory is nice; your numbers are what matter. Plug your income, debts, down payment, and local tax/insurance estimates into Utilo's mortgage calculator — it shows the full PITI + HOA + PMI payment, not the fantasy principal-only number. Try three scenarios: the max the rules allow, 10% below it, and 20% below it. Most buyers are happiest at the lower two — the house you can comfortably afford beats the house that owns you. For the complete payment breakdown, see our mortgage-with-taxes-and-insurance guide, and find every free tool on the Utilo homepage.

Frequently asked questions