The most consequential financial decision most Americans make is also the one they are least prepared to think about clearly. "How much mortgage can I afford" feels like a math question, and there is math in it, but most of the answer is judgment — about your life, your job stability, your plans, and how much margin you want for the unexpected. The lender will give you a number. The 28/36 rule will give you a number. Neither is the answer.
The three numbers, explained
The 28/36 rule (the conservative number): Housing costs (mortgage, taxes, insurance, HOA) should not exceed 28% of gross monthly income. Total debt obligations (housing plus all other debts) should not exceed 36% of gross monthly income. This rule has been the standard underwriting guideline for nearly a century.
The lender's maximum (the aggressive number): Most lenders will approve mortgages with debt-to-income ratios up to 43%, and FHA loans up to 50% in some cases. This is the number they will quote you when you ask "how much can I borrow." It assumes you have no other major financial goals.
The number you can actually afford (the real number): Somewhere between the two, depending on your specific situation. Generally closer to the 28/36 number than the lender's maximum.
The arithmetic, with real numbers
Take a household earning $120,000 in gross annual income ($10,000/month). Current 30-year mortgage rates are 6.49–7.49% for excellent credit. Property tax averages 1.1% of home value annually; insurance averages $1,500/year; assume no HOA.
The 28% rule says: Housing costs no more than $2,800/month. Working backwards from this with current rates and a 20% down payment, the maximum home price is roughly $415,000.
The 36% rule (assuming $500/month in other debts) says: Total debts under $3,600/month. Housing limited to $3,100/month after subtracting the $500. Maximum home price: roughly $470,000.
The lender (43% DTI) might approve: Up to $3,800/month in housing payments after subtracting other debts. Maximum home price: roughly $590,000.
The gap between $415,000 and $590,000 is $175,000 in home-buying power. Whether to use it or not is the question.
What pushes you toward the conservative number
- Variable income. Commission, bonus, or self-employment income should not be assumed at peak levels. Use a multi-year average, weighted toward the recent low.
- Single-income household. No backup if the primary earner loses work.
- Industry vulnerability. Tech, finance, oil and gas, and other cyclical industries face periodic layoff waves.
- Young children or planning to have them. Childcare alone can cost $1,500–$3,000/month per child in many markets.
- Limited emergency reserves. Less than 6 months of expenses in liquid savings.
- High retirement-savings goals. If you are behind on retirement, every dollar in housing is a dollar not compounding for 30 years.
What allows you to lean toward the aggressive number
- Stable dual income with both partners in steady industries.
- 12+ months of liquid emergency reserves.
- Strong existing retirement savings on track for goals.
- Older buyers with significant assets and shorter time horizons.
- Plans to stay 10+ years (transaction costs and equity buildup work in your favor).
The hidden costs people forget
The mortgage payment is not the only cost of homeownership, and ignoring the rest is how budgets break. Annual costs to budget for, beyond the mortgage:
- Maintenance: Plan for 1–2% of home value annually. On a $400,000 home, $4,000–$8,000/year for things that break.
- Property taxes: Already in the 28/36 calculation, but easily forgotten. Increase as the home appreciates.
- Insurance: Hazard insurance plus, increasingly, climate-specific add-ons (flood, fire) in many regions.
- Utilities: Owners pay water, sewer, and trash that renters often do not.
- HOA fees: Range from $0 to $1,500+/month depending on property type. Often increase faster than inflation.
- Furniture and improvements: First-year owners typically spend 1–3% of home value on furniture, paint, and small improvements.
The decision framework
Step 1: Calculate the 28/36 number. This is your conservative ceiling.
Step 2: Calculate the lender's maximum. This is your aggressive ceiling.
Step 3: Identify which factors above push you toward conservative or aggressive.
Step 4: Pick a number between the two that matches your risk tolerance and life plans.
Step 5: Stress-test the number. Could you make the payment if your income dropped 20%? If your spouse stopped working for a year? If a roof replacement comes up in year three?
Use our affordability calculator to plug in your specific numbers.
If you found a factual error in this article, please write to team@iloans.ai and we will correct it.
Frequently asked questions
What's the 28/36 rule?
It's the traditional underwriting guideline that housing costs (mortgage, taxes, insurance, HOA) should not exceed 28% of gross monthly income, and total debt obligations should not exceed 36%. It is conservative compared to modern lender maximums of 43–50% DTI.
How much house can I afford on $100,000 a year?
Using the 28% rule and current 6.5% mortgage rates, roughly $345,000 home price assuming 20% down. Using the lender's 43% DTI maximum, up to $490,000. The right number depends on your other debts, savings goals, and risk tolerance.
Is the lender's maximum the right number to use?
Generally no. Lenders are willing to approve loans at higher DTI ratios than most financial planners would recommend. Borrowing the maximum the lender will offer leaves no margin for emergencies, retirement saving, or income disruption.
How much should I budget for home maintenance annually?
Plan for 1–2% of the home's value per year for maintenance and unexpected repairs. On a $400,000 home, that is $4,000–$8,000 annually. Older homes and homes in extreme weather climates trend toward the higher end.