How Much House Can I Afford? A Practical Budget Framework

There are two answers to this question. The bank's answer — which tells you the maximum they'll lend — and your actual answer, which is how much house you can buy without hollowing out your life. These numbers are often very different.

Most first-time buyers fixate on the bank's number. They get pre-approved for $450,000, start shopping at $445,000, and six months after closing they're skipping vacations and eating through savings to cover property taxes, insurance, and the water heater that failed in January. The bank didn't lie to you. It just answered a different question.

Here's how to calculate the number that actually matters.

Why the Bank's Number Overstates What You Can Afford

Lenders use a metric called DTI — debt-to-income ratio. Most conventional loans allow a total DTI of 43–45%, meaning your total monthly debt payments (including the proposed mortgage) can equal up to 43% of your gross monthly income.

Gross income is what you earn before taxes. Your mortgage payment, however, comes out of take-home pay. If you earn $100,000 gross and live in a state with combined federal and state taxes around 25%, you take home roughly $75,000 — or $6,250 a month. A bank using 43% DTI approves you based on $8,333 monthly gross, which means a much larger mortgage than your take-home actually supports comfortably.

Add the other housing costs lenders don't fully account for in affordability calculations — maintenance, HOA fees, utilities, lawn care — and the gap between "approved amount" and "comfortable amount" widens further.

The 28% Rule (And Its Limits)

The traditional guideline is to spend no more than 28% of gross monthly income on housing costs, including mortgage principal, interest, property taxes, and homeowner's insurance (PITI). On a $90,000 gross income, that's $2,100/month.

This is a reasonable starting point but it ignores several real costs:

• Maintenance: A common estimate is 1% of home value per year. On a $350,000 home, that's $3,500/year, or roughly $290/month. Older homes and those with deferred maintenance require more.
• Utilities: Homeowners typically pay significantly more for utilities than renters because of larger square footage, higher ceilings, and older systems.
• HOA fees: If applicable, these can range from $100 to $1,000+ per month and aren't optional.
• Mortgage insurance: If you put down less than 20%, you'll pay PMI — typically 0.5%–1.5% of the loan amount annually until you reach 20% equity.

A more honest affordability target for most buyers is 25% of gross income on PITI, with a separate mental budget for maintenance and homeownership overhead.

A Step-by-Step Affordability Calculation

Work through this in order. Each step narrows the number toward reality.

Step 1: Start with your take-home monthly income. Use the actual amount deposited into your account, not gross. If you have a variable income (freelance, commission, bonuses), use a conservative 12-month average.

Step 2: Add your co-borrower's take-home if buying with a partner. Only include income that's stable and documentable.

Step 3: Subtract your fixed monthly obligations. Car payments, student loans, minimum credit card payments, childcare. These will all continue after you buy.

Step 4: Subtract your non-negotiable monthly expenses. Food, transportation, phone, subscriptions, healthcare costs. Don't use what you'd like to spend — use what you actually spend. Pull three months of bank statements if you're unsure.

Step 5: Subtract a maintenance reserve. Budget at least $200–$300/month for a newer home, $350–$500/month for a home more than 20 years old. This is money you set aside, not spend — but it's money the housing decision is consuming.

Step 6: What's left? That remainder is your maximum comfortable monthly housing payment including taxes, insurance, HOA, and PMI if applicable. Work backwards from that number to a loan amount using a mortgage calculator.

If you're buying with a partner and one of you could lose income — parental leave, career change, job instability — run the numbers on one income. You need to be able to make the payment even if the second income disappears temporarily.

What Drives the Price-to-Payment Relationship

At current mortgage rates (which change frequently — run your own numbers), roughly every $100,000 in loan amount adds $500–$700/month to your payment at rates between 6% and 8%. That means the difference between a $300,000 home and a $400,000 home (assuming 20% down) is roughly $500–$700/month before taxes, insurance, and maintenance.

That's not nothing. Over a year that's $6,000–$8,400. Over five years, $30,000–$42,000. These are real lifestyle tradeoffs, not rounding errors.

The Down Payment Variable

How much you put down changes both your monthly payment and whether you owe PMI. A larger down payment means:

• Lower monthly payment (smaller loan balance)
• No PMI once you reach 20% down
• Lower interest rate in some cases (lenders view lower LTV as less risky)
• Less cash in your emergency fund

That last point matters. Buying with 20% down is ideal on paper, but not if it drains your savings to zero. Most financial planners suggest keeping 3–6 months of expenses as an emergency fund after closing. If putting 20% down means you close with $4,000 left in the bank, you're exposed.

Many first-time buyers find that 5–10% down with PMI, combined with a maintained emergency fund, is actually the safer position than 20% down and no financial cushion.

Affordability Varies Significantly by Location

In high-cost markets — parts of California, New York, Seattle, Vancouver, Sydney, London — affordability math often fails. Housing costs routinely exceed 30–40% of take-home pay for median-income earners. This doesn't mean you shouldn't buy there; it means you're making a deliberate tradeoff and should go in clear-eyed rather than surprised.

For UK buyers, the equivalent calculation uses gross salary and the rule-of-thumb benchmark of borrowing 4–4.5x combined income, though lenders will stress-test at higher rates. Canadian buyers should factor in CMHC insurance premiums if putting down less than 20%. Australian buyers in Sydney and Melbourne will find the 28% rule aspirational rather than achievable in many price tiers.

The Questions to Ask Before You Set Your Budget

Before you finalize a number, answer these honestly:

• Is your income secure for the next 3–5 years? If you're considering a job change or know your industry is volatile, buy less house.
• Do you want children or more children? Childcare costs in most markets are significant and will eat into the payment you thought was comfortable.
• Does this home need immediate work? A house listed at $350,000 that needs $40,000 in repairs in the first year has a real cost of $390,000 — plus the stress and time of managing the work.
• What are property taxes in this specific neighborhood? Tax rates vary enormously within the same metro area. Two identical $400,000 homes can have property tax bills that differ by $3,000–$5,000/year depending on the jurisdiction.

Getting Your Budget Down on Paper

The hardest part of affordability planning isn't the math — it's the honesty required to do it accurately. The First-Time Homebuyer Toolkit includes a True Affordability Worksheet that walks through every cost category, including the ones most calculators skip, so you arrive at a number that accounts for your actual life rather than an idealized version of it.

The goal isn't to buy the least house you can. It's to buy the most house that keeps your finances stable, your savings growing, and your stress at a level you can actually live with for the next decade.