How Much House Can I Afford

A common rule of thumb is that your home price should not exceed 3–5 times your annual gross income. For example, if you earn $90,000 per year, you might afford a home between $270,000 and $450,000. However, your actual affordability depends on your debt load, down payment, credit score, and local property costs.

The 28/36 rule states that you should spend no more than 28% of your gross monthly income on housing costs (mortgage principal, interest, taxes, and insurance) and no more than 36% on total debt payments. Staying within these limits helps ensure you can comfortably manage your mortgage alongside other financial obligations.

Lenders use your DTI ratio — total monthly debt payments divided by gross monthly income — to assess risk. Most conventional lenders prefer a DTI of 43% or lower, though some programs allow up to 50%. A lower DTI means you can qualify for a larger loan and potentially a better interest rate.

The minimum down payment varies by loan type: conventional loans typically require 3–20%, FHA loans require as little as 3.5%, and VA/USDA loans may require 0% for eligible borrowers. Putting down at least 20% eliminates the need for private mortgage insurance (PMI) and reduces your monthly payment.

FHA loans are backed by the Federal Housing Administration and allow down payments as low as 3.5% with a credit score of 580 or higher. They typically follow a 31/43 DTI guideline — meaning your housing costs should be no more than 31% of gross monthly income and total debts no more than 43%. This can help first-time buyers qualify for more home.

VA loans are available to eligible veterans, active-duty service members, and surviving spouses. They offer 0% down payment, no PMI, and competitive interest rates. VA lenders generally look for a DTI of 41% or below, though exceptions are made. This can significantly increase the home price you can afford compared to conventional loans.

Beyond income and debts, key factors include your credit score (higher scores unlock lower interest rates), cash reserves (lenders often want 2–6 months of payments saved), local property taxes and insurance costs, HOA fees, and the overall cost of living in the area you're buying. Getting pre-approved gives you a precise figure based on your full financial picture.

Private Mortgage Insurance (PMI) is required on conventional loans when your down payment is less than 20% of the home's purchase price. It protects the lender — not you — in case of default. PMI typically costs 0.5%–1.5% of the loan amount annually and can be removed once you reach 20% equity in your home.