The approval letter said 480,000 dollars. The couple who showed it to me made about 110,000 dollars between them, had a toddler, and were already losing sleep over a 380,000 dollar listing. The bank was not wrong about the math it ran. It was just running different math than the one that decides whether you sleep at night.
That gap, between what a lender will approve and what you can actually live with, is the whole subject of this guide. We are going to build the affordability number from the ground up: gross income, the debts that count, the 28/36 rule, the full monthly payment, the cash you need to close, and the reserve you should keep afterward. Every figure is dated and sourced, the math is shown so you can check it, and at the end you run your own numbers in the home affordability calculator and pick the comfort figure, not the ceiling.
How much house can I afford on a given salary?
It depends on three things more than income: your monthly debt, your down payment, and the current rate. A common rough anchor is a comfortable price around 3 to 4 times household income with low debt and 10 to 20 percent down, but that is a starting point, not an answer. If you want the numbers worked out band by band, what you can buy at 75k, 100k, 150k, and 200k runs each income through the same method below.
Here is the honest version: affordability is a payment question wearing a price-tag costume. You do not buy a price, you carry a monthly payment, and that payment is driven as much by rates, taxes, and insurance as by the number on the listing. So we start with the payment.
What is the 28/36 rule, and should you follow it?
The 28/36 rule keeps your monthly housing payment near 28 percent of gross monthly income and your total monthly debt under 36 percent. The first number is the front-end DTI; the second is the back-end DTI, and it is the one underwriting leans on. Use gross (pre-tax) income for both, because that is what lenders use.
Treat these as comfort starting points, not law. The old hard 43 percent qualified-mortgage cap and the GSE Patch were replaced effective July 1, 2021 (with a mandatory compliance date of October 1, 2022) by a price-based standard tied to the loan’s APR, so DTI must still be considered but is no longer a single legal line (CFPB). In practice, FHA loans commonly allow a back-end DTI around 43 percent and up toward 50 percent with compensating factors (HUD Handbook 4000.1), and Fannie Mae conventional loans commonly go to 45 percent, and up to 50 percent with strong credit and reserves. Qualifying DTI is not the same as comfortable DTI. For the full plain-English version of this rule, turned into real monthly dollars with loan-type ceilings and a high-cost-area critique, the 28/36 rule explained is the dedicated deep dive.
| Ratio | What it counts | Comfort target | Where lenders may go |
|---|---|---|---|
| Front-end | Housing only (PITI + HOA) | near 28% | higher in high-cost markets |
| Back-end | Housing + all other debt | under 36% | FHA ~43%, conventional 45 to 50% |
A simple comfort framework helps when a rule of thumb meets real life. Think of the front-end ratio in three bands.
| Front-end DTI | Label | What it tends to feel like |
|---|---|---|
| Under 28% | Safe | Room to save, invest, and absorb surprises |
| 28% to 33% | Stretched | Workable with low other debt and real reserves |
| Above 36% | Risky | Little margin; one setback hurts |
What actually goes into your monthly payment?
Four things at a minimum, and two more that often apply: principal, interest, property taxes, and homeowners insurance, plus PMI if you put less than 20 percent down and HOA dues if your home has them. That full bundle is your housing payment, and it is what affordability is built on. Most online estimates headline only principal and interest, which is why the real payment can land hundreds of dollars higher than the number that got you excited.
Now the part that surprises people most. Property taxes and insurance are not small, and they vary enormously by location, so two homes at the exact same price can carry very different payments.
That thousand-dollar gap is not a rounding error, it is the difference between comfortable and stretched. It is also why you should never trust an affordability estimate that assumes a generic tax rate. Use your actual county rate and a real insurance quote.
| Component | What it is | Main driver |
|---|---|---|
| Principal | Pays down the loan balance | Loan size and term |
| Interest | The cost of borrowing | Rate and balance |
| Taxes | Property tax, often via escrow | Local rate and assessed value |
| Insurance | Homeowners policy | Location and rebuild cost |
| PMI | Lender protection under 20% down | Loan size and credit |
| HOA | Association dues, if any | The specific community |
Why does the bank approve you for more than feels safe?
Because the lender is solving a different problem than you are. Underwriting optimizes a gross-income DTI and the debts that appear on your credit report, plus how easily the loan can be sold to Fannie Mae or Freddie Mac. It does not see your childcare bill, your retirement contributions, your travel, your job stability, or the roof that will need replacing in year eight.
The single most useful sentence in this whole guide is this: the lender tells you what you might qualify for, and your budget tells you what you can live with. Spending right up to the approval is how people become house poor, technically able to make the payment while everything else in their financial life gets squeezed. To grade a specific payment against that risk, the house poor test runs the four checks.
| Factor | In the lender's math? | In your real budget? |
|---|---|---|
| Listed debts (car, student, cards) | Yes | Yes |
| Childcare | No | Yes, often huge |
| Retirement contributions | No | Yes |
| Maintenance and repairs | No | Yes, 1 to 4% of value/yr |
| Job or income risk | No | Yes |
| Travel and lifestyle | No | Yes |
How much down payment do you need, and how much cash to close?
Less down than you think to buy, and more cash than you think to actually close. Twenty percent is not required: FHA allows 3.5 percent down at a 580 or higher credit score, and conventional programs allow 3 percent (HUD, Fannie Mae). A smaller down payment preserves your reserves and can let you buy sooner, but it usually adds PMI until you reach about 20 percent equity.
The number that trips up first-time buyers is cash to close, which is more than the down payment. It is the down payment plus closing costs (2 to 5 percent of the price, per the CFPB) plus prepaids that seed your escrow account. And then, separately, you want a reserve so you are not broke the day you get the keys. What it really costs to close on a home itemizes every line of that stack.
Three buckets, in plain terms: cash to buy (the down payment), cash to close (down payment plus closing costs plus prepaids), and cash to survive year one (close plus a reserve and early maintenance). On PMI, expect roughly 0.46 to 1.50 percent of the loan per year (Urban Institute), or about 30 to 70 dollars a month per 100,000 dollars borrowed (Freddie Mac); it can usually be cancelled at 80 percent loan-to-value and ends automatically at 78 percent.
| Down payment | Typical loan type | PMI? | Effect |
|---|---|---|---|
| 3% | Conventional 97, HomeReady | Yes | Lowest cash, highest payment |
| 3.5% | FHA (580+ score) | Yes (MIP) | Low cash, MIP can persist |
| 5% to 10% | Conventional | Yes | Middle ground |
| 20% | Conventional | No | Highest cash, no PMI, lowest payment |
How much should you keep after closing?
Enough that a surprise does not become a crisis. Lenders may require a couple of months of payments in cash reserves, and a personal cushion of several months of living expenses is prudent on top of that (Fannie Mae, CFPB). The trap is draining every dollar for a bigger down payment, then facing a broken HVAC in month three with nothing left.
Reserves are also what let you stress-test honestly. Before you commit, run the payment at a rate one point higher, and ask what happens if you drop to one income. If the deal only works in the best case, it is a hope, not a budget.
What does 2026 mean for affordability?
It means moving numbers, so anchor to current data and update the calculator. The Freddie Mac PMMS 30-year fixed averaged 6.49 percent as of June 25, 2026 (15-year 5.84 percent), down from about 6.77 percent a year earlier, and it moves weekly. The NAR median existing-home price was a record 429,300 dollars in May 2026, up 1.3 percent year over year, while NAR’s affordability index improved to 105.6 from 97.5 a year earlier as incomes slightly outpaced prices.
Two cautions specific to now. Property taxes and insurance premiums have risen sharply in some states, so a generic assumption can understate the payment badly. And because rates move, the affordable price you compute today is a snapshot. Pull the current PMMS figure and your real local costs before you make an offer.
Putting it together with the calculator’s worked example: at 6.49 percent, an 80,000 dollar income with 500 dollars of other monthly debt, 20 percent down, a 1.1 percent property-tax rate, and 1,800 dollars a year of insurance supports roughly a 287,000 dollar price under a binding 28 percent front-end limit (the home affordability calculator returns 287,394 dollars, with a resulting back-end DTI of 35.5 percent). Change any one input and the answer moves.
Your next step
Run your real numbers. Open the home affordability calculator, enter your gross income, your actual monthly debts, a local property-tax rate, a real insurance quote, any HOA dues, and the current rate, then read the binding limit it reports. Use the mortgage calculator to see the full PITI and amortization behind the payment, and if you are still deciding whether to buy at all, the rent vs buy calculator is the question that comes first.
Then do the part most people skip: aim below the maximum. The math gives you a ceiling; your life gives you the number. When you want to see what your specific income can buy with conservative, moderate, and stretch assumptions, read house affordability by income next. For how the payment itself is built and why early payments are mostly interest, how mortgage amortization works goes deeper. And if the numbers refuse to stretch, house hacking covers the one lever that shrinks the payment itself: renting part of the property so tenants carry a share of it.
This is educational information, not a pre-approval and not financial, tax, insurance, or legal advice. Mortgage rates, property taxes, insurance premiums, HOA dues, and home prices vary by borrower, lender, loan type, credit score, and location, and they change over time. The ranges here are illustrative and drawn from the dated sources cited; your numbers will differ. Update the calculator with your own figures and confirm with a lender.