How Much House Can You Actually Afford?

You've probably heard the rule: buy a house worth three times your salary. It's simple, memorable, and wrong often enough to be dangerous. A $90,000 salary in Texas and a $90,000 salary in California buy very different houses, and a 7% mortgage rate changes everything the 3%-era rules assumed. Here's how lenders really do the math — and how to do it yourself before you fall in love with a listing.

The number lenders actually care about: DTI

Lenders don't think in house prices. They think in debt-to-income ratio (DTI) — the share of your gross monthly income that goes to debt payments. Two ratios matter:

• Front-end ratio (housing ratio): your total housing cost — principal, interest, property tax, homeowner's insurance, and PMI if any — divided by gross monthly income. Most lenders want this at or below 28%.
• Back-end ratio (total DTI): all monthly debt payments — housing plus car loans, student loans, credit card minimums — divided by gross monthly income. The usual ceiling is 36%, though some loan programs stretch to 43–45%.

This is the famous 28/36 rule. It's not a law, and lenders bend it, but it's the best starting frame for your own planning because it answers the real question: not "what will the bank allow?" but "what can I pay without hating my life?"

A worked example

Let's say you earn $95,000 a year. That's $7,917 a month before taxes.

At 28%, your max housing payment is $2,217/month. Now work backward. Suppose property tax runs about 1.1% of the home's value per year, insurance about $1,800 a year, and you're putting 10% down with a 30-year mortgage at 6.5%. Roughly $400 of that $2,217 goes to tax and insurance, leaving about $1,817 for principal and interest — which supports a loan of around $287,000, meaning a home price near $319,000.

Now check the back end. Say you also have a $380 car payment and $220 in student loans — $600 total. Your all-in monthly debts at that home price would be about $2,817, which is 35.6% of $7,917. Just under the 36% line. It works — but barely, and with no slack. One surprise (a roof, a job wobble) and that budget gets uncomfortable fast.

Notice what the "3x salary" rule would have said: $285,000. Not wildly off here — but change the interest rate to 4% or the property tax to 2.2% (hello, New Jersey) and the two methods diverge fast. The DTI method adapts. The rule of thumb doesn't.

What the formulas leave out

Lenders qualify you on PITI — principal, interest, tax, insurance. Real homeownership costs more than PITI. Budget 1–2% of the home's value per year for maintenance (older house, higher end of that), plus utilities that may be bigger than your apartment's, plus the HOA fee that listings love to bury in the fine print. A $300,000 house quietly costs another $300–500 a month beyond the mortgage payment. If the 28% calculation already feels tight, these extras are what tip it over.

And then there's the down payment question. Twenty percent avoids PMI and gets you better pricing, but waiting three extra years to save it while prices rise can cost more than the PMI you'd pay. There's no moral victory in 20% — it's just math. Run both scenarios: buy sooner with PMI versus buy later with 20% down, and see which leaves you wealthier. PMI, annoying as it is, eventually drops off. Rent paid while saving never comes back.

The honest version of the answer

Here's the uncomfortable truth: the maximum a lender approves is almost always more than you should spend. Lenders don't budget for your vacations, your retirement contributions, or the fact that you might want to change careers at 40. Their 36% ceiling is about their risk, not your happiness.

A saner target for most people: keep total housing costs under 25% of your take-home pay (not gross — take-home, the money that actually hits your account). At that level, the house fits your life. Above 30% of take-home, the house starts running your life. Everything between is a judgment call about what you value.

So do the DTI math to learn what you can borrow. Then decide what you want to pay. Those are different numbers, and the second one matters more.