You earn a steady salary. You want a house. Somewhere between those two facts sits a number you need to know before you talk to a lender, a seller, or a real estate agent: the top price you can realistically handle. Not the price a bank might approve you for. The price your actual monthly life can carry.
This is the home affordability question, and the good news is that you can answer it yourself in about ten minutes with a salary figure, a debt figure, and a rough sense of your monthly costs. A free affordability calculator does the math, but the reasoning behind the math is what keeps you out of trouble.
The Problem
Most buyers start with the wrong number. They ask a lender, "How much can I borrow?" The lender runs a formula, and the answer comes back surprisingly high. Then the buyer tours homes at that ceiling, falls in love with one, and signs a mortgage that eats 45% of their take-home pay. Two years later they are house-poor: the house is fine, but everything else in life feels tight.
The mistake is treating the lender's maximum as your maximum. It is not the same thing. A bank is checking whether you can probably keep paying. You should be checking whether you can keep living.
Why the Bank's Number and Your Number Are Different
Lenders use debt-to-income ratios. A common guideline is that your total monthly debt payments, including the new mortgage, should stay under roughly 36% to 43% of your gross monthly income. Some loan programs push higher. Gross income is what you earn before taxes.
Here is the catch. Gross income is not the money that lands in your account. If you earn $6,000 a month gross, your take-home might be closer to $4,400 after taxes, health insurance, and retirement contributions. A 43% debt ratio on gross income allows $2,580 in total debt payments. If you already have a $400 car payment and $150 in minimum card payments, that leaves about $2,030 for a mortgage. On a $4,400 take-home, that is 46% of the money you actually control.
That gap between gross and net is why two people with identical salaries can afford very different houses. It is also why the honest answer to "how much house can I afford" always starts with your take-home pay, not your offer letter.
What Actually Goes Into a Monthly Payment
A mortgage payment is not just principal and interest. It usually includes four pieces, often shortened to PITI:
- Principal and interest: the loan itself.
- Property taxes: collected monthly in an escrow account in most loans.
- Homeowners insurance: also usually escrowed.
- Mortgage insurance: required on many loans with less than 20% down, and it can add real money.
Then add the costs that are not in the payment at all: utilities, maintenance, HOA fees if applicable, and the fact that a house is a machine that occasionally breaks. A common planning rule is to budget 1% of the home's value per year for maintenance. On a $350,000 house, that is $3,500 a year, or roughly $290 a month. Lots of first-time buyers forget this line entirely.
Worked Example: A $75,000 Salary
Let's run one clean example and state every assumption.
Assumptions: $75,000 gross salary, about $4,700 monthly take-home after taxes and deductions, $500 in existing monthly debt (car plus cards), a 30-year fixed loan at 6.5%, 10% down, property tax around 1.1% of value per year, insurance around $1,400 per year, and mortgage insurance around 0.5% of the loan per year.
If you target a total housing payment of 28% of gross monthly income, that is $1,750. Work backward: taxes and insurance on a $300,000 home run about $275 and $117 a month. Mortgage insurance adds roughly $112. That leaves about $1,246 for principal and interest. At 6.5% over 30 years, that payment supports a loan of roughly $197,000. Add your $30,000 down payment (10% of $300,000) and you land near a $225,000 to $230,000 purchase price.
Notice something. The bank might approve you for considerably more than that, because it is allowed to count gross income and stretch the ratio. Your budget says $230,000. That is the number worth trusting.
Rates move, tax rates vary by county, and mortgage insurance pricing depends on your credit score, so treat the result as a range, not a verdict. Run your own figures with the calculators on this site and adjust the rate to whatever you are actually being quoted.
The Solutions: Four Ways to Set Your Number
1. The 28/36 rule. Keep housing costs under 28% of gross monthly income and total debt under 36%. It is the classic, conservative approach. Advantage: built-in cushion for savings and surprises. Disadvantage: in expensive markets it may point to a price that barely exists. Best for: buyers who want margin and dislike financial stress.
2. The 43% debt-to-income ceiling. This is closer to what lenders allow. Advantage: gets you into a higher price range. Disadvantage: little room for error, and it can make retirement saving and travel feel impossible. Best for: high earners with stable jobs and no plans for big expenses soon, used with eyes open.
3. The 25% of take-home rule. Keep housing at or below a quarter of the money that actually hits your bank account. Advantage: extremely comfortable, fast wealth building. Disadvantage: often means a smaller or more distant home. Best for: buyers who value flexibility, early retirement, or a single-income household.
4. The 15-year loan test. Take the payment on a 15-year mortgage at the same price and ask if you could survive it. If yes, a 30-year loan at that price is genuinely safe, because you can always pay extra and finish early while keeping the lower required payment. Advantage: a stress test that costs nothing. Disadvantage: it will talk you out of some houses. Best for: cautious buyers who want a hard filter.
Which One Fits You?
If your income is stable and your debts are small, the 43% ceiling with a 30-year loan is workable, though I would still aim lower. If you have student loans, a car payment, or a growing family, the 28/36 rule or the take-home test will keep you sane. If you are buying in a high-cost metro, run the numbers both ways and compare against rents in your area, because sometimes renting and investing the difference wins for a few more years. There is no universal right answer. There is only the answer that matches your income pattern, your job security, and how much you hate a tight month.
Step-by-Step Action Plan
- Write down your gross salary and your actual monthly take-home pay. Use the real number from your last payslip.
- List every monthly debt payment: car, student loans, credit cards, personal loans. Use minimums.
- Pick a housing percentage: 25% of take-home, 28% of gross, or up to 43% of gross.
- Subtract taxes, insurance, mortgage insurance, HOA, and a maintenance allowance from your target payment. What remains is your principal-and-interest budget.
- Convert that principal-and-interest figure into a loan amount using a current rate, then add your down payment.
- Add up cash needed at closing: down payment plus roughly 2% to 5% of the price in closing costs, plus moving and initial repairs.
- Check your emergency fund. After closing, you want at least three to six months of expenses still liquid. If the down payment wipes you out, you are buying too much.
- Get a pre-approval to confirm the math, but treat it as a ceiling, not a target.
- If any term confuses you, the site's glossary of key terms explains escrow, PMI, and DTI in plain language.
Common Mistakes to Avoid
- Using gross income as your budget. Fix: budget from take-home pay, where the money actually lives.
- Forgetting maintenance and utilities. Fix: add 1% of home value per year plus realistic utility costs before you decide.
- Spending the entire down payment. Fix: keep an emergency fund untouched and treat it as non-negotiable.
- Ignoring future costs like childcare or a car replacement. Fix: build your payment around the life you will have in three years, not just today.
- Letting a pre-approval become your shopping budget. Fix: shop below your maximum, always.
- Assuming the rate will drop before you close. Fix: run your numbers at the current rate plus one point, and see if you still feel comfortable.
A Quick Note on When to Talk to a Professional
A calculator gives you a target range. A mortgage broker or loan officer can confirm what you qualify for, and a financial advisor can help if your situation is complicated: self-employment income, irregular bonuses, a recent job change, or a large upcoming expense. If your budget only works at the very top of your range, that is a sign to wait, not a sign to stretch. For background reading on related money questions, the site's practical guides cover budgeting and loan topics that pair well with this one.
Expert Takeaway
The single most important lesson: your affordable house price is set by your monthly cash flow and your emergency fund, not by the biggest loan a lender will approve. Find the payment you can make in a bad month, not just a good one, and let that number lead.
FAQ
What percentage of my salary should go to a mortgage? A common starting point is 28% of gross monthly income for housing costs, with total debt under 36%. Many lenders allow up to about 43%. Lower is safer, especially if you have other goals or irregular income.
How much house can I afford on a $100,000 salary? It depends on your debts, down payment, rate, and local taxes. As a rough illustration, a buyer with modest debt and 10% down might land in the $300,000 to $400,000 range at current rates, but the honest answer requires your actual numbers. Run them rather than borrowing someone else's.
Does the down payment change how much house I can afford? Yes, in two ways. A larger down payment reduces the loan and the monthly payment, and reaching 20% down usually removes mortgage insurance, which frees up more room in your budget.
Should I include my spouse's income? Only if that income is stable and you plan to keep both jobs. If one income might pause for childcare or a career change, test whether the payment works on the lower income alone.
Is it better to rent and save more? Sometimes, especially in expensive markets or if your down payment would leave you with no emergency fund. Compare the full cost of owning against renting plus investing the difference, and decide based on your timeline, not on pressure.