The question every first-time buyer asks — and rarely gets a straight answer to. Most online calculators spit out a number that feels optimistic but doesn't account for property taxes, insurance, HOA fees, or what your actual take-home pay looks like after deductions.
Here's a grounded framework for figuring out what you can genuinely afford, not just what a lender will approve you for. Those two numbers are often very different.
The 28/36 rule: Your monthly housing costs should not exceed 28% of your gross monthly income. Your total monthly debt payments — housing plus car loans, student loans, credit cards — should not exceed 36% of gross income.
These are guidelines, not hard limits. Many lenders will approve loans up to a 43% back-end DTI (debt-to-income ratio), and some government-backed loans go higher. But just because a lender will approve it doesn't mean you should take it. Living at 43% DTI leaves very little room for emergencies, job changes, or the inevitable costs of homeownership that people forget to factor in.
A more conservative target — and one that financial planners generally recommend — is keeping your housing costs below 25% of take-home pay, not gross income. Your take-home is what you actually spend. Gross income includes taxes you never see.
At current rates (roughly 6.5%–7% on a 30-year fixed mortgage), here's a rough guide to what different income levels can afford with a 20% down payment and moderate existing debt:
| Annual income | Max housing payment (28%) | Approximate home price | Down payment needed (20%) |
|---|---|---|---|
| $60,000 | $1,400/mo | ~$210,000 | ~$42,000 |
| $80,000 | $1,867/mo | ~$280,000 | ~$56,000 |
| $100,000 | $2,333/mo | ~$350,000 | ~$70,000 |
| $120,000 | $2,800/mo | ~$420,000 | ~$84,000 |
| $150,000 | $3,500/mo | ~$525,000 | ~$105,000 |
| $200,000 | $4,667/mo | ~$700,000 | ~$140,000 |
These estimates include principal and interest only. Your real monthly payment will be higher once you add property taxes, homeowner's insurance, and HOA fees if applicable — often adding $400–$1,200/month depending on location.
This is where most affordability calculators mislead people. The mortgage payment is just one piece of what homeownership actually costs each month.
Property taxes. These vary dramatically by location — from under 0.5% of home value annually in Hawaii and Alabama, to over 2% in New Jersey, Illinois, and Texas. On a $400,000 home in Cook County, Illinois, property taxes alone can run $8,000–$12,000 per year — $667–$1,000 per month on top of your mortgage payment.
Homeowner's insurance. Budget $1,000–$3,000/year for a typical single-family home, more in hurricane, wildfire, or flood-prone areas. Florida homeowners are currently paying significantly above national averages due to the insurance market crisis there.
PMI (Private Mortgage Insurance). If your down payment is less than 20%, expect to pay PMI — roughly 0.5%–1.5% of the loan amount annually. On a $350,000 loan that's $145–$437 per month added to your payment until you hit 20% equity.
HOA fees. Condos and planned communities charge monthly HOA fees ranging from $100 to over $1,000. These are non-negotiable and often increase over time.
Maintenance. The rule of thumb is 1%–2% of home value per year for maintenance and repairs. On a $400,000 home that's $4,000–$8,000 annually — a number most first-time buyers dramatically underestimate in their first year.
You don't need 20% down. Conventional loans are available with as little as 3% down, FHA loans with 3.5%, and VA loans with nothing down for qualifying veterans. But putting less than 20% down means paying PMI, which adds to your monthly cost.
The math on PMI is worth understanding: if PMI costs you $300/month and it takes you 8 years to reach 20% equity, that's $28,800 you paid to borrow with a smaller down payment. Whether that's worth it depends on your alternative — if that same $40,000 could earn more invested elsewhere, keeping the smaller down payment might make sense.
A 10% down payment is often the sweet spot — it reduces PMI significantly compared to 3%–5% down, while leaving more cash available for emergency reserves and moving costs.
Your credit score affects your mortgage rate, which directly affects how much house you can afford. The difference between a 680 and a 760 credit score can be 0.5%–1% on your rate — which translates to tens of thousands of dollars over a 30-year loan.
On a $400,000 mortgage, the difference between a 6.5% and 7.5% rate is about $270/month — or $97,200 over 30 years. If your credit score is borderline, spending 6–12 months improving it before buying can be one of the highest-return financial moves you make.
Before you talk to a lender, do this calculation yourself: take your gross monthly income and multiply by 0.28. That's your maximum housing payment by the traditional guideline. Then subtract your estimated property tax (monthly), insurance (monthly), and any HOA fees. What remains is the maximum mortgage payment you should be carrying.
Then run that through a mortgage calculator to see what loan amount that payment supports at current rates. That number — not what a lender pre-approves you for — is your real budget.
Enter your home price, down payment, and income to see your true monthly cost including taxes, insurance, PMI, and HOA — plus your real debt-to-income ratio.
Calculate My MortgageLenders will often approve you for more than you should borrow. The right amount to spend on a home is based on your full monthly picture — not just the mortgage payment — and leaves room for the unexpected costs that every homeowner encounters. A conservative target of 25% of take-home pay for total housing costs, with 3–6 months of expenses in reserve, gives you the cushion to actually enjoy the home you buy.