The price you can afford depends on your down payment, interest rate, and how much of your monthly income goes to the mortgage payment

The house price you can afford is not the same as the house price a lender will offer you. Lenders typically allow a mortgage payment up to 28% of your gross monthly income (before taxes). If you earn $5,000 per month before taxes, that means a payment around $1,400. At today's interest rates, that payment covers a different loan amount depending on whether rates are 6% or 7%, and it covers an even smaller loan if you put down 5% instead of 20%.

The real limit is what leaves you with money to live on after the mortgage, property tax, insurance, and maintenance. A lender's math does not account for your car payment, student loans, groceries, or the fact that a roof costs $15,000 when it fails. Your actual affordable price is usually lower than what a lender will approve.

Key Takeaways

  • Lenders typically allow a mortgage payment of up to 28% of your gross monthly income, but this does not mean you should spend that much.
  • Your down payment size changes the loan amount dramatically—a 20% down payment on a $300,000 house is $60,000, while a 5% down payment is $15,000.
  • The interest rate you receive depends on your credit score, debt-to-income ratio, and current market rates, and even a 1% difference changes your monthly payment by $200 or more.
  • Property taxes, homeowners insurance, and maintenance costs add 1% to 2% of the home's value annually and must fit in your budget alongside the mortgage payment.
  • A mortgage calculator that includes property tax and insurance for your specific county gives you a more honest picture than the lender's approval amount.

How your down payment size affects the price you can afford

The larger your down payment, the smaller the loan you need, and the lower your monthly payment. A $50,000 down payment on a $250,000 house means borrowing $200,000. The same $50,000 down payment on a $300,000 house means borrowing $250,000—a $50,000 difference in the loan amount.

Down payments below 20% trigger private mortgage insurance (PMI), an extra monthly cost that protects the lender if you stop paying. PMI typically runs 0.5% to 1% of the loan amount per year, split into monthly payments. On a $200,000 loan, that is $100 to $200 per month added to your payment. PMI drops off once you reach 20% equity in the home, but it costs you thousands in the meantime.

If you have $30,000 saved, putting all of it down on a $150,000 house (20% down) costs less per month than putting $30,000 down on a $250,000 house (12% down, plus PMI). The lower-priced house is the one you can actually afford.

What your interest rate does to your monthly payment

Interest rates change daily and depend on your credit score, how much debt you already carry, and the current market. A borrower with a 740 credit score might receive a 6.5% rate while a borrower with a 620 score receives 8%. That 1.5% difference adds roughly $250 per month to a $300,000 loan.

You can see your likely rate before you commit by getting pre-may have access to with a lender. Pre-qualification is free and does not affect your credit score. It shows you the rate you would receive based on your financial picture right now. If the rate is higher than you expected, paying down debt or waiting to build your credit score can lower it.

Comparing rates across three to five lenders takes a few hours and can save you thousands over the life of the loan. Each lender pulls your credit once during pre-qualification, and multiple pulls within 14 days count as a single inquiry for credit-scoring purposes.

The real monthly cost: mortgage, tax, insurance, and maintenance

Your lender calculates your debt-to-income ratio using the mortgage payment alone. But your actual monthly housing cost includes property tax, homeowners insurance, and maintenance reserves. Property tax varies wildly by county—some run 0.5% of the home's value per year, others run 2% or more. Insurance typically costs 0.5% to 1% of the home's value annually. Maintenance and repairs average 1% of the home's value per year, though older homes cost more.

On a $300,000 house in a high-tax county, the mortgage payment might be $1,800, but property tax could add $500 per month, insurance $250, and maintenance reserves $250. Your total housing cost is $2,800, not $1,800. If your gross income is $10,000 per month, that $2,800 is 28% of your income—the lender's maximum—leaving nothing for car payments, student loans, food, or utilities.

Use a mortgage calculator that includes property tax and insurance for your specific county. Zillow, Bankrate, and NerdWallet all offer calculators where you enter your county and see the full monthly cost. This number is more honest than the lender's approval amount.

How much house you can afford if you have other debts

Lenders look at your debt-to-income ratio, which includes the mortgage payment plus all other monthly debt payments: car loans, student loans, credit cards, personal loans, and child support. If you earn $5,000 per month and already pay $800 toward a car loan and $300 toward student loans, you have $1,100 in debt payments. Most lenders cap total debt at 43% of gross income, which means you can add a mortgage payment of up to $1,950 ($5,000 × 0.43 = $2,150 − $1,100 existing debt).

That $1,950 mortgage payment covers a much smaller loan than if you had no other debts. Paying off the car loan or student loans before you buy increases the mortgage payment you can afford. Even paying down credit card balances lowers your monthly debt payments and raises your mortgage approval amount.

If you are close to buying and your debt-to-income ratio is tight, paying off smaller debts first can make the difference between approval and denial. A $300 monthly payment eliminated is $300 more you can borrow.

Using the 28/36 rule and the 30-year payoff test

The 28/36 rule is a lender's guideline, not a personal finance rule. It says your housing payment should not exceed 28% of gross income and your total debt should not exceed 36%. Many financial advisors suggest tighter limits: keeping housing at 25% of gross income or lower, which leaves more room for emergencies, retirement savings, and life changes.

A practical test is the 30-year payoff: if you lost your job tomorrow, could you cover the mortgage, tax, and insurance for six months on savings and unemployment? If not, the house is too expensive. A $2,000 monthly housing cost requires $12,000 in emergency reserves just for the house. Most people need another $10,000 to $15,000 for car repairs, medical bills, and other surprises.

This is why the house a lender approves you for is often more than you should spend. The lender does not know your risk tolerance, your job stability, or whether you have aging parents who might need support. You do.

What happens if you stretch too far

Buying more house than you can comfortably afford creates a cascade of problems. You have less money for maintenance, so small repairs become big ones. You cannot save for retirement or your children's education. A job loss or medical emergency forces you to sell quickly or fall behind on payments. Foreclosure damages your credit for seven years and can cost you $10,000 to $30,000 in legal fees and lost equity.

The house that felt like a stretch in year one feels impossible in year five when the roof needs replacing, your property tax increases, or your income drops. Buying a house you can afford comfortably today—not the maximum a lender will approve—protects you from these outcomes.

Frequently Asked Questions

What credit score do I need to get approved for a mortgage?

Most lenders require a credit score of at least 620 for a conventional loan, though 640 to 660 is more common. FHA loans (backed by the Federal Housing Administration) accept scores as low as 580. Your score affects the interest rate you receive—a higher score gets a lower rate. You can check your score free through AnnualCreditReport.com or your bank's website.

How much should I put down on a house?

Twenty percent down avoids private mortgage insurance and is the traditional target, but 10% or 15% is common if you have other savings. Five percent down is possible but adds PMI costs. The right amount depends on your emergency fund—you should have three to six months of expenses saved after the down payment, not just the down payment itself.

Can I afford a house if I have student loans?

Yes, but student loans count toward your debt-to-income ratio. If you have $400 in monthly student loan payments, that reduces the mortgage payment a lender will approve. Paying down the student loans before you buy increases your mortgage approval amount. Income-driven repayment plans lower your monthly payment but do not change how lenders calculate your debt ratio.

What if the house I want costs more than I can afford?

Look in a different neighborhood or wait until you have saved a larger down payment or paid off other debts. Stretching to buy a specific house now often means selling it at a loss in five years when your circumstances change. A house you can afford comfortably is a better investment than a house you cannot.

Should I get pre-approved before I start looking?

Yes. Pre-approval shows sellers you are serious and tells you your actual budget before you fall in love with a house. It takes a few hours, is free, and does not commit you to anything. You can shop with confidence knowing what you can afford.