How much house can I afford? It’s the first question every homebuyer asks, and getting the answer right is one of the most important financial decisions you’ll ever make. It’s not just about what a lender will approve—it’s about finding that sweet spot where you can comfortably own a home without stretching your budget too thin. Whether you’re a first-time buyer or looking to upgrade, understanding your true home affordability is the foundation of smart homeownership.
Let me walk you through everything you need to know about calculating how much house you can realistically afford in 2026, including the factors lenders consider, rules of thumb that actually work, and strategies to maximize your buying power without overextending yourself.
The Quick Answer: Use the 28/36 Rule
Before we dive deep, here’s the rule most mortgage professionals use as a starting point: the 28/36 rule. This guideline suggests that:
- Your monthly housing expenses shouldn’t exceed 28% of your gross monthly income
- Your total monthly debt payments (including your mortgage) shouldn’t exceed 36% of your gross monthly income
For example, if you earn $6,000 per month before taxes, your housing payment should stay under $1,680, and your total debt payments should remain below $2,160.
But here’s the thing—this is just a starting point. Your actual affordability depends on several factors we’ll explore throughout this guide. The housing market in 2026 requires a more nuanced approach, and that’s exactly what we’re going to provide.
What Lenders Actually Look At When Determining Affordability
When you apply for a mortgage, lenders evaluate multiple factors to determine how much they’re willing to lend you. Understanding these elements helps you see the full picture of your home affordability.
Your Gross Monthly Income
Lenders start with your gross monthly income—that’s your income before taxes and deductions. This includes:
- Base salary or wages
- Bonuses and commissions (with a two-year history)
- Self-employment income (averaged over two years)
- Rental income from investment properties
- Retirement income, Social Security, or pension payments
- Alimony or child support (if you choose to disclose it)
The more documented income you can demonstrate, the higher your potential borrowing power. According to the Consumer Financial Protection Bureau, stable, verifiable income is one of the most critical factors in mortgage approval.
Your Debt-to-Income Ratio (DTI)
Your debt-to-income ratio is perhaps the most important number in determining how much house you can afford. It’s calculated by dividing your total monthly debt payments by your gross monthly income.
Lenders typically look at two DTI ratios:
- Front-end ratio (housing ratio): This includes only your housing expenses—mortgage principal, interest, property taxes, homeowners insurance, and HOA fees if applicable (often called PITI or PITIA).
- Back-end ratio (total debt ratio): This includes your housing expenses plus all other monthly debt obligations like car loans, student loans, credit cards, and personal loans.
Most conventional loans require a back-end DTI of 43% or lower, though some loan programs allow up to 50% depending on compensating factors like excellent credit or substantial cash reserves.
Here’s a practical example: If you earn $7,000 per month and have $500 in car payments, $200 in student loans, and a proposed mortgage payment of $2,100, your DTI would be:
($2,100 + $500 + $200) / $7,000 = 40% DTI
That would generally qualify you for most loan programs, though you’d be on the higher end of the acceptable range.
Your Credit Score
Your credit score doesn’t just determine whether you’ll be approved—it directly impacts how much house you can afford by influencing your interest rate. The Federal Housing Finance Agency reports that even a half-percentage point difference in your mortgage rate can affect your purchasing power by tens of thousands of dollars.
Here’s how credit scores generally impact mortgage rates in 2026:
- 760+: Best available rates
- 700-759: Excellent rates with minimal impact
- 660-699: Good rates, slight increase from top tier
- 620-659: Higher rates, reduced buying power
- Below 620: Limited conventional options, consider FHA
For example, on a $400,000 loan, the difference between a 6.5% rate (excellent credit) and a 7.5% rate (fair credit) is about $280 per month—or $100,800 over 30 years. That same monthly payment would qualify you for a larger loan amount with better credit.
Your Down Payment
The amount you can put down affects your affordability in two key ways:
- Loan amount needed: A larger down payment means borrowing less, which lowers your monthly payment and improves your DTI ratio.
- Private Mortgage Insurance (PMI): With less than 20% down on a conventional loan, you’ll pay PMI, which adds to your monthly housing costs and reduces how much you can afford.
If you’re putting down less than 20%, factor in PMI costs of roughly 0.5% to 1% of the loan amount annually. On a $350,000 loan, that’s approximately $145-290 added to your monthly payment.
The Real Calculator: How to Figure Out Your Affordability
Now let’s get practical. Here’s a step-by-step process to calculate how much house you can actually afford:
Step 1: Calculate Your Maximum Monthly Housing Payment
Start with your gross monthly income and multiply by 0.28 (the front-end ratio).
Example: $8,000 monthly income × 0.28 = $2,240 maximum housing payment
Step 2: Account for Existing Debt
Now calculate your maximum total debt payment using 0.36 (the back-end ratio):
Example: $8,000 × 0.36 = $2,880 total debt allowance
Subtract your existing monthly debts:
$2,880 – $600 (existing debts) = $2,280 available for housing
Use the lower of these two numbers. In this example, $2,240 is your target monthly housing payment.
Step 3: Break Down Your Housing Payment
Remember that your monthly housing payment includes more than just principal and interest:
- Principal & Interest (P&I)
- Property Taxes (T)
- Homeowners Insurance (I)
- HOA fees (if applicable)
- PMI (if less than 20% down)
Property taxes and insurance vary significantly by location. In Texas, for instance, property taxes average around 1.6-1.8% of home value annually. In Florida, expect 0.9-1.0%. The Tax Foundation provides state-by-state comparisons that can help you estimate these costs.
Let’s say property taxes and insurance will cost $450 monthly, and you’ll pay $150 in PMI. That leaves you with:
$2,240 – $450 – $150 = $1,640 for principal and interest
Step 4: Calculate Your Maximum Loan Amount
Using your available P&I payment, current mortgage rates, and loan term, you can determine your maximum loan amount. At a 7% interest rate over 30 years, a $1,640 monthly P&I payment supports approximately a $246,000 loan.
Add your down payment:
$246,000 loan + $50,000 down payment = $296,000 maximum home price
Factors That Can Increase Your Buying Power
Want to afford more house? Here are legitimate strategies to boost your purchasing power:
Improve Your Credit Score
As mentioned earlier, a better credit score means lower interest rates. Even improving from 680 to 720 could increase your buying power by 5-8%. Pay down credit card balances, dispute errors on your credit report, and avoid opening new credit accounts before applying for a mortgage.
Reduce Your Existing Debt
Every dollar you eliminate from monthly debt obligations increases your housing affordability. Paying off a car loan or consolidating high-interest credit card debt can dramatically improve your DTI ratio. Some buyers strategically pay off debts in the months leading up to their home purchase to maximize approval amounts.
Increase Your Down Payment
A larger down payment reduces your loan amount, eliminates or lowers PMI, and can sometimes qualify you for better interest rates. Plus, lenders view substantial down payments as a sign of financial stability, which can work in your favor during underwriting.
Consider Different Loan Programs
Different loan types have different requirements:
- Conventional loans: Typically require the strictest DTI ratios but offer the best rates for well-qualified buyers
- FHA loans: Allow DTI ratios up to 50% with compensating factors and require as little as 3.5% down
- VA loans: Available to veterans with no down payment requirement and no PMI
- USDA loans: Offer zero-down financing in eligible rural and suburban areas
Each program has its advantages depending on your situation. The U.S. Department of Housing and Urban Development offers resources to help you understand which programs you might qualify for.
Boost Your Income
This isn’t an overnight solution, but it’s worth mentioning: increasing your verifiable income is the most straightforward way to afford more house. This could mean negotiating a raise, taking on a side business (with a two-year track record), or having a non-working spouse return to employment.
The Hidden Costs People Forget
When calculating how much house you can afford, don’t forget these often-overlooked expenses:
Maintenance and Repairs
Financial experts recommend budgeting 1-2% of your home’s value annually for maintenance and repairs. On a $350,000 home, that’s $3,500-7,000 per year, or roughly $290-580 monthly. Newer homes typically fall on the lower end; older homes on the higher end.
Utilities
Larger homes cost more to heat, cool, and maintain. Don’t forget to factor in electricity, gas, water, sewer, trash, and internet. Depending on your region and home size, utilities can easily run $300-500 monthly or more.
HOA Fees
If you’re buying in a community with a homeowners association, those fees are mandatory and can range from $50 to $500+ monthly depending on the amenities provided. These fees are included in your DTI calculation, so they directly impact your affordability.
Moving and Initial Setup Costs
You’ll need furniture, window coverings, lawn equipment, and countless other items when you move into a new home. Budget at least $5,000-10,000 for initial setup costs beyond your down payment and closing costs.
What’s Comfortable vs. What’s Approved
Here’s something critical that many first-time buyers miss: just because you’re approved for a certain amount doesn’t mean you should borrow that much.
Lenders calculate maximum approval amounts, but only you know your complete financial picture:
- Do you want to travel or maintain other hobbies?
- Are you planning for children or already have childcare expenses?
- Do you want to build savings or invest for retirement?
- How stable is your job or industry?
- Do you prefer financial breathing room or are you comfortable with tighter budgets?
Many financial advisors suggest keeping your housing costs closer to 25% of gross income rather than the lender-approved 28-36% to maintain financial flexibility. This approach leaves room for unexpected expenses, job changes, or economic downturns without immediately threatening your ability to keep your home.
The 2026 Market Reality Check
The mortgage landscape in 2026 presents unique considerations. With interest rates having fluctuated significantly over recent years and home prices reaching new levels in many markets, affordability requires extra attention.
Current market conditions mean:
- Higher rates demand larger down payments: If you want to maintain affordable monthly payments with 2026’s interest rates, consider putting down more than the minimum
- Home prices vary dramatically by region: What $300,000 buys in one state might cost $600,000 in another
- Property taxes and insurance have increased: Make sure you’re using current rates when calculating affordability, not outdated figures
The good news? There are still opportunities for well-prepared buyers who understand their numbers and work with knowledgeable mortgage professionals who can navigate today’s lending environment.
Special Situations: How Affordability Changes
Self-Employed Buyers
If you’re self-employed, lenders typically average your income over two years and may apply additional scrutiny. This can reduce your qualified amount compared to W-2 employees with the same actual income. Working with a lender experienced in self-employed borrowers—like our team at Highlands Mortgage—makes a significant difference in maximizing your approval.
Buyers with Non-Traditional Income
Bonuses, commissions, rental income, and investment returns can all count toward qualifying income, but they require proper documentation and often a two-year history. If significant portions of your income come from non-traditional sources, gather your documentation early and work with a lender who understands how to properly structure your application.
Buyers with Student Loans
Student loans impact your DTI even if they’re in deferment or on income-based repayment plans. Lenders typically use either your actual payment or 1% of the outstanding balance, whichever is greater. This can significantly impact affordability for recent graduates or those with substantial educational debt.
Buyers Planning for Future Changes
Are you planning to have children soon? Change careers? Start a business? Consider how these life changes might affect your income and expenses. Your mortgage approval is based on your current situation, but your comfort with the payment should account for foreseeable changes.
Working with a Mortgage Professional
While online calculators provide helpful estimates, they can’t account for the nuances of your specific financial situation. A qualified mortgage professional can:
- Evaluate your complete financial profile
- Identify which loan programs best suit your situation
- Suggest strategies to improve your buying power
- Pre-approve you for a specific amount before you start shopping
- Help you understand the true cost of homeownership in your target area
Getting pre-approved—not just pre-qualified—gives you a clear budget and makes you a more competitive buyer when you find the right home. In competitive markets, sellers often won’t even consider offers from buyers without solid pre-approval letters.
Your Next Steps
Now that you understand how much house you can afford, here’s your action plan:
- Calculate your baseline numbers: Use the 28/36 rule as your starting point with your actual income and debts
- Review your credit: Pull your credit report and scores to identify any areas for improvement
- Research loan programs: Understand which mortgage types align with your situation
- Factor in all costs: Include taxes, insurance, maintenance, and hidden expenses
- Get pre-approved: Work with a mortgage professional to establish your precise buying power
- Leave a buffer: Consider borrowing less than your maximum to maintain financial flexibility
Remember, buying a home should be exciting, not stressful. Understanding your true affordability—not just what you’re approved for—puts you in control of one of life’s biggest financial decisions.
Ready to Determine Your Exact Home Affordability?
Every buyer’s situation is unique, and the difference between a generic online calculator and expert analysis can mean tens of thousands of dollars in buying power or thousands in savings over the life of your loan.
At Highlands Mortgage, we specialize in helping buyers across Texas, Florida, Colorado, and New Jersey understand exactly how much house they can comfortably afford. With access to FHA, VA, USDA, conventional, jumbo, and specialized loan programs, we can evaluate your complete financial picture and identify the best path forward.
Whether you’re just starting to explore homeownership or ready to get pre-approved today, I’m here to provide the clarity and strategy you need to make a confident decision.
Contact John Picinic NMLS #134871 817.846.2800 [email protected] MortgagesByJohn.com
Let’s work together to determine exactly how much house you can afford—and create a strategy to make your homeownership goals a reality in 2026.
