How much house can I afford? A realistic budget beyond the payment

By Daniel Reyes

Mortgage Writer · Oct 30, 2026 · 8 min read

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"How much house can I afford?" sounds like one number. It's really two.

The first is what a lender might approve. The second is what you can pay every month and still sleep well. Those numbers are often far apart, and the gap is where a lot of first-time buyers get into trouble.

This guide walks through how lenders size up your budget, the costs that hide behind the loan payment, and a simple way to find a price range that fits your real life.

The short version

• Lenders look at your debt-to-income ratio (DTI). That's your monthly debt payments divided by your gross (before-tax) monthly income.
• Your housing payment is more than the loan. Property taxes, homeowners insurance, mortgage insurance and HOA dues all count.
• Approval isn't the same as affordable. Many buyers can be approved for more than they'd be comfortable paying.
• Cash matters too. You need a down payment, closing costs and a cushion left over after you move in.

Step 1: Know what lenders measure

Lenders mainly use two ratios.

The front-end ratio is your total housing payment divided by your gross monthly income. The housing payment includes principal, interest, property taxes, homeowners insurance, any mortgage insurance and HOA dues. People often call this PITI.

The back-end ratio (your total DTI) adds every other monthly debt on top: car loans, student loans, minimum credit card payments, personal loans, and child support or alimony.

A classic rule of thumb is 28/36. That means keeping housing at or below about 28% of gross income, and all debts at or below about 36%.

Here's the catch. The 28/36 rule is a guideline, not a lender limit. Actual limits are often higher:

• Conventional loans that run through Fannie Mae's automated system can allow a total DTI up to about 50% in some cases. Manually reviewed loans are usually capped lower.
• FHA loans use benchmarks of about 31% for housing and 43% total. Higher ratios can be approved with strengths like cash reserves or a larger down payment.

Each lender also adds its own standards. So the number a lender approves can be well above what 28/36 suggests. That's exactly why you should build your own budget first. If you're still choosing a loan type, our FHA vs. conventional guide covers the trade-offs.

Step 2: Add up the full monthly cost of owning

The loan payment is only part of the bill. Here's what usually sits on top of it.

Property taxes. Nationally, effective property tax rates average a bit under 1% of a home's value a year. But they vary a lot by state and county, from well under 0.5% to over 2%. Look up the actual tax bill on any home you're considering. Don't rely on an average.

Homeowners insurance. Recent national averages land roughly between $1,800 and $2,900 a year, depending on the source and coverage. Some states run far higher, especially where storms or wildfires are common. Get a real quote early.

Mortgage insurance. With a conventional loan and less than 20% down, you'll usually pay private mortgage insurance (PMI). FHA loans carry their own mortgage insurance premium. Either one adds to the monthly cost.

HOA dues. Condos, townhomes and many newer neighborhoods charge monthly or yearly fees. These can range from small amounts to several hundred dollars a month.

Maintenance and repairs. A common rule of thumb is to set aside about 1% to 4% of the home's value a year. Older homes tend to sit toward the higher end. A new roof or water heater doesn't care about your budget.

Utilities. A house may cost more to heat, cool and water than an apartment. Ask the seller or utility for typical bills.

Step 3: Count the cash you'll need

Monthly costs aren't the whole picture. You also need cash up front.

• Down payment. Some conventional loans allow as little as 3% down. FHA allows 3.5% with a qualifying credit score. Putting down 20% on a conventional loan avoids PMI, but it isn't required.
• Closing costs. These often run about 2% to 5% of the purchase price. They cover lender fees, appraisal, title and prepaid taxes and insurance.
• Moving and setup. Movers, furniture, window coverings and small fixes add up fast.
• An emergency cushion. Many planners suggest keeping three to six months of expenses in savings after you close. Some lenders also look for cash reserves.

Draining every dollar to close can leave you one surprise away from debt. Plan to have money left over.

A worked example (hypothetical)

Let's follow Alex, a hypothetical buyer. The numbers are rounded and for illustration only. They aren't a quote, and real rates, taxes and insurance will differ.

Alex's situation:

• Gross household income: $8,000 a month
• Car payment: $450 a month
• Student loan: $200 a month
• Plans to put 5% down on a conventional loan
• Uses a hypothetical 6.5% fixed rate on a 30-year loan for planning

The 28/36 check:

• 28% of $8,000 is $2,240 for housing.
• 36% of $8,000 is $2,880 for all debts. Subtract the $650 in other debts, and that leaves $2,230 for housing.
• Alex uses the lower number: about $2,230 for the full housing payment.

Subtract the non-loan costs:

• Property taxes: about $300 a month
• Homeowners insurance: about $210 a month
• PMI: about $110 a month
• HOA: none
• Total: about $620 a month

That leaves about $1,610 a month for principal and interest. At the hypothetical 6.5% rate, that supports a loan of roughly $255,000. With 5% down, the home price lands around $268,000.

Now compare the "stretch" number:

Say a lender allows a 45% total DTI for Alex. That's $3,600 a month in debts, or about $2,950 for housing. Taxes, insurance and PMI rise with the price too. After those, that could support a home price of roughly $350,000.

That's a gap of more than $80,000 between the comfortable budget and the stretch budget.

The take-home check:

Alex's take-home pay is about $6,100 a month after taxes and retirement savings. A $2,230 housing payment is already more than a third of that. Then add utilities, groceries, childcare and maintenance savings. The $268,000 range leaves breathing room. The $350,000 range likely doesn't.

Cash needed at $268,000:

• Down payment (5%): about $13,400
• Closing costs (2% to 5%): about $5,400 to $13,400
• Plus moving costs and a cash cushion

The lesson: start with what fits your monthly life, then confirm what lenders will approve. Not the other way around.

Ways to stretch your budget (and the trade-offs)

If the comfortable number feels low, you have a few levers. Each comes with a trade-off.

• Pay down other debts. Clearing a car loan or credit card balance lowers your DTI. It can also free up cash every month.
• Raise your down payment. A bigger down payment shrinks the loan and can reduce or remove mortgage insurance. It also takes longer to save.
• Improve your credit. A stronger score can help you qualify for better terms. Lenders still set the final rate.
• Look at different areas or home types. Taxes, insurance and HOA dues vary a lot by location.
• Ask about assistance programs. Many states and cities offer down payment help for qualifying buyers. Rules and income limits vary.
• Shop several lenders. Rates and fees differ. Comparing Loan Estimates from two or three lenders can make a real difference.

Before you talk to a lender

• Build your own budget first. Use your take-home pay and real expenses, not just the gross income a lender uses.
• Check your credit reports for errors at AnnualCreditReport.com.
• Get preapproved. Preapproval shows sellers you're serious and gives you a lender's view of your budget.
• Ask for a full payment estimate. Ask each lender for the monthly payment with taxes, insurance and mortgage insurance included.
• Set your own ceiling. Decide your top price before you start touring homes. It's much harder after you fall for one.

This article is general information, not financial advice. Lender guidelines can change, and lenders set their own rates, terms and approval standards. Talk with a lender about your own situation before you decide.

About the author

Daniel Reyes

Mortgage Writer

Daniel writes about refinancing and buying a home for the Cashzilla team. He walks through the math step by step so you can see the trade-offs before you talk to a lender.