How much house can I afford on my salary?

The 28/36 guideline, in plain terms

Underwriting practice has settled on two ratios. Housing cost — principal, interest, property tax, homeowner's insurance, mortgage insurance and any HOA fee — is generally kept at or under about 28% of gross monthly income. Total monthly debt, housing plus card minimums, car payments and student loans, is generally kept at or under about 36%, though many programmes allow more with compensating factors.

These are guidelines used to size a budget, not a promise of approval. A lender will verify income, assets and credit and apply its own overlays.

Worked example on a $96,000 salary

Notice how much of the 28% never reaches the mortgage: roughly a fifth of it goes to tax and insurance before a dollar of principal is paid. Change the tax rate to 2% — normal in parts of Texas and New Jersey — and the same income supports something closer to a $260,000 purchase.

What existing debt does to the number

The 36% total-debt test often binds before the 28% housing test does. On $8,000 a month, 36% is $2,880 for everything. If you already pay $500 a month on a car and a card, only $2,380 is available for housing — but the 28% test caps housing at $2,240, so in that case housing is still the binding limit. Push existing debt to $700 a month and the total-debt test takes over, cutting the housing budget by roughly $60 and the affordable price by around $10,000.

This is exactly the kind of interaction worth testing rather than guessing. The affordability mode in the mortgage calculator names which of the two constraints is binding for your inputs, and the extra-payment payoff calculator shows how fast a balance could be cleared first.

Down payment, rate and term

• A larger down payment raises the price you can reach and, past 20%, removes mortgage insurance from the monthly cost — often worth more than a small rate improvement.
• Rate matters most on long terms. On the example above, a quarter-point higher rate trims roughly $9,000 from the affordable price.
• A 15-year term builds equity far faster but cuts affordable price sharply, because the payment on the same balance is much higher. That trade-off is worked through in the 15-year versus 30-year comparison.

Before you shop

1. 1Estimate net pay with the take-home pay calculator and sanity-check the housing figure against what actually lands in your account.
2. 2Look up the real property tax rate and an insurance quote for the area you are shopping — these vary more than rates do.
3. 3Decide how long you plan to stay; if it is under about five years, work through the rent versus buy break-even first.
4. 4Re-run affordability with the rate a lender actually quotes rather than a headline rate.

Every figure here is an estimate for planning. It is not a pre-approval, a lending decision or tax advice.