How much house can I afford? Learn about costs and use our free mortgage calculator

Our experts answer readers' home-buying questions and write unbiased product reviews (here's how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.

urbazon/Getty Images

When you buy through our links, Insider may earn an affiliate commission. Learn more

• To determine how much house you can afford, think about your monthly payments and upfront costs.
• A rule of thumb is that you should spend 28% or less of your monthly income on housing costs.
• Factor expenses like the mortgage, homeowners insurance, and property taxes into monthly payments.
• Policygenius can help compare homeowners insurance policies to find the right coverage, at the right price »

When you buy a house, you'll need to plan for both upfront and long-term costs — the higher the price tag of the house you buy, the more you'll spend on both types of expenses.

The price range of houses you can afford will be limited both by what you can afford when it comes to upfront costs like a down payment and closing costs, as well as long-term costs, such as your mortgage payment and everything that's included in that, including interest, taxes, and insurance.

Determining how much you can afford — the 28/36 rule

The 28/36 rule is a popular budgeting rule of thumb that states that when buying a house, you should spend no more than 28% of your gross monthly income on housing expenses, and no more than 36% of your income on all of your monthly debt payments.

To calculate 28% of your monthly income, multiply your gross monthly income (that's your income before taxes) by 0.28.

Let's say your monthly income is $5,000. Multiply $5,000 by 0.28, and your total is $1,400. If you abide by this rule, you can afford to spend up to $1,400 per month on your house, including your mortgage, interest, property taxes, homeowners insurance, and homeowner's association dues.

Then, multiply your income by 0.36 to see how much you should spend in total on debt. With a $5,000 income, your maximum debt payments should be no more than $1,800. With a $1,400 housing payment, this means you have $400 left to spend on other monthly bills, like auto loans or minimum credit card payments.

The 28/36 rule is a general guideline that can help keep you from spending too much of your income on housing and other debt. But it isn't universally applicable (particularly if you have an especially high or low income), and it isn't the only data point you should be paying attention to.

Factors that can impact how much house you can afford

• Your income, savings, and debts. These are three major affordability factors that tell lenders how much you can put down and how much you can afford to spend on a mortgage each month (including how much you have left over after you've paid all your other debts and obligations).
• Your credit history. If you have a lower credit score, mortgage lenders may try to mitigate their risk by approving you for a smaller loan. You'll also likely get a higher rate, which means you'll be able to afford less house because more of your monthly payment will need to go toward interest.
• Taxes and insurance. If you're looking to buy in an area with a high property tax rate or if you're eyeing a home that's expensive to insure, that can impact how much house you can ultimately afford. 
• Homeowners association dues. Buying in a community that requires homeowners to pay HOA dues can potentially add hundreds or even thousands of dollars to your monthly housing costs. 
• Your job. You want to be able to afford your mortgage payment now and in the long term. Mortgage lenders will ensure you have a sufficient employment history before approving you for a mortgage, but it's also a good idea to consider the likelihood that you'll stay in your career at your current income level or higher for at least the next five or 10 years.
• Property condition. Buying a fixer upper can initially seem affordable, but if you end up with a home that needs a lot repairs or updates, it could ultimately be too expensive for your budget. 
• Other expenses, wants, and needs. How much house you can afford also depends on your needs and typical spending habits. If you like to spend a large chunk of your paycheck on traveling, for example, a large monthly mortgage payment might not fit into your lifestyle.

Determining your debt-to-income ratio

How much house you can afford will also be limited by how much a mortgage lender will approve you for. To determine this, lenders will look at how much you earn each month relative to how much you spend on debt payments (such as student loans or credit card debt). This is referred to as your debt-to-income ratio (DTI).

To calculate your DTI, take the total sum of all your monthly debt payments and divide that number by your gross monthly income. For example, if you spend $1,000 on debt each month and your monthly income is $5,000, you have a DTI of 20%.

1,000 ÷ 5,000 = 0.2

To get a conventional mortgage, the maximum DTI you can have is typically 50%, including your proposed monthly mortgage payment.

Continuing with our example, this means that if you have a monthly income of $5,000 and already pay $1,000 a month on other debt, the maximum mortgage payment you could be approved for is $1,500.

1,000 + 1,500 = 2,500

With a $1,500 mortgage, your total monthly debt payments would equal $2,500.

2,500 ÷ 5,000 = 0.5

Added up together, all these costs equal 50% of your gross monthly income.

The less debt you have, the more room you'll have for your mortgage payment. But remember that just because a lender approves you for a certain amount doesn't mean you should borrow that much. You should still consider how the monthly payment fits into your overall budget

Upfront costs to expect

Buying a home requires a lot of money from the get-go. Here are three factors to consider:

• Down payment: Do you have the minimum down payment amount your mortgage requires? You'll need 3% for a conforming mortgage backed by Freddie Mac or Fannie Mae, 20% for a jumbo mortgage, and 3.5% for an FHA mortgage. You might not need any down payment for a USDA or VA mortgage.
• Closing costs: Closing costs include expenses like an application fee, appraisal fee, and settlement fee. According to mortgage technology company ClosingCorp, the average closing costs in 2021 were $6,905 including transfer taxes, or $3,860 without taxes.
• Remaining savings: You probably don't want to drain 100% of your savings to buy a home, only to find yourself in a bind if a financial emergency occurs. Think about how much money you want to have left in savings once you've made the down payment and covered closing costs.

Monthly expenses to expect

If your monthly housing costs make up a huge percentage of your income, then you may want to take out a smaller mortgage, or find a home that comes with fewer fees. Here are the housing costs to consider:

• Mortgage payment: This includes your principal (the amount you borrowed) and interest.

• Property taxes: The amount you pay in property taxes largely depends on where you live. For example, you may pay less in Arkansas than in North Carolina — but you'll also pay less in some parts of Arkansas than others. Also, the more your home is worth, the more you'll pay in property taxes.
• Homeowners insurance: The average annual cost of homeowners insurance in the US was $1,311 in 2020, according to the National Association of Insurance Commissioners. Your payment will depend on factors such as the age of your home, estimated value of the home, and where you live.

• Private mortgage insurance: You'll need PMI if you have less than 20% for a down payment on a conventional mortgage. The lower your down payment, the bigger risk the lender considers you to be. PMI helps offset that risk for the lender. PMI typically costs between 0.2% and 2% of your mortgage amount.
• Homeowner's association dues: Not all neighborhoods have HOAs, but if you move into an area with an association, then you will pay dues and be expected to follow HOA guidelines. Depending on where you live, HOA dues can vary a lot, from a few hundred dollars a year to hundreds or even thousands of dollars a month if you live in a really upscale community.

Let's say you get a conventional mortgage on a $400,000 home, and you make a 12% ($48,000) down payment. Your interest rate is 6%. Your monthly payment might look something like this:

To lower your monthly costs, you may consider buying a less expensive home, making a larger down payment, or choosing a town with lower property taxes.

Ways to boost your buying power

Your interest rate can make a big difference in how much house you can afford. As rates go up, your buyer power decreases. 

While you can't change general mortgage rate trends, you can work on your finances to get the best rate possible and increase the amount you'll be approved for. You can do this by improving your credit score, paying down debt, or saving for a larger down payment.

Paying off credit card debt can be particularly helpful because you'll be lowering your DTI, which can help you qualify for a larger loan. It will lower your credit utilization ratio, as well, which can boost your credit score.

You can also increase your homebuying power by looking for homes in a more affordable area. For example, if you live in a big city, moving to a nearby suburb could help you get more square footage for less money.

How much house can I afford frequently asked questions