Before you browse listings, answer one question: what can you actually afford? The amount a bank is willing to lend you is not always the amount you can live with comfortably.
Start with the 28/36 rule
Lenders and planners often use two simple limits:
- Your housing costs (mortgage payment, property tax, and insurance) should stay under 28% of your gross monthly income.
- Your total monthly debt payments (housing, car loan, student loans, credit cards) should stay under 36% of your gross monthly income.
A worked example
Say your household earns $6,000 per month before tax, and you have $400 a month in other debt payments.
- 28% of $6,000 = $1,680 (maximum housing cost)
- 36% of $6,000 = $2,160 (maximum total debt)
- $2,160 minus $400 of existing debt = $1,760
Since the 28% limit ($1,680) is lower than $1,760, your target housing budget is $1,680 per month, including taxes and insurance.
Do not forget the hidden costs
The mortgage payment is only part of owning a home. Plan for:
- Property tax and homeowners insurance
- Maintenance and repairs (a common guideline is 1% of the home’s value per year)
- Utilities, which are often higher in a larger home
- HOA or community fees, if they apply
- Private mortgage insurance (PMI) if your down payment is under 20%
How your down payment changes things
A bigger down payment means a smaller loan, a lower monthly payment, and less interest paid overall. Putting down 20% can also help you avoid PMI. You can test different amounts with a down payment calculator before you commit to a savings target.
Interest rates matter more than you think
On a $250,000 loan over 30 years, a rate of 6% gives a monthly principal and interest payment of about $1,499. At 7%, it rises to about $1,663. That is roughly $164 more every month, or nearly $59,000 more over the life of the loan.
Get your own numbers
Enter your income, debts, and down payment into a house affordability calculator for a personalized estimate. Then check the exact monthly payment with a mortgage calculator.
Practical tips before you buy
- Keep an emergency fund separate from your down payment.
- Get pre-approved, but treat the approval amount as a ceiling, not a target.
- Pay down high-interest debt first, since it lowers your debt-to-income ratio.
- Leave room in your budget for life to change.
This article is for general information only and is not financial advice.
