How much house can you actually afford on your salary?

A lender will happily tell you the largest house you qualify for. That number is real, defensible, and almost always too big. The bank is optimizing for the loan it can safely make; you should be optimizing for the life you want to live while paying it. The gap between those two goals is where people overextend. Here's how affordability is actually calculated, with a full worked example, so you can find your own number instead of accepting theirs.

The 28/36 rule

The oldest and most useful guideline in mortgage lending is the 28/36 rule. It sets two ceilings based on your gross (pre-tax) monthly income:

• 28% — the front-end ratio. Your total monthly housing cost should not exceed 28% of gross monthly income.
• 36% — the back-end ratio. Your housing cost plus all other debt payments should not exceed 36% of gross monthly income.

These are the two debt-to-income (DTI) ratios. Front-end looks at housing alone. Back-end looks at everything you owe. A lender checks both and uses whichever produces the smaller, safer loan.

Crucially, "housing cost" doesn't just mean the mortgage payment. It's the full PITI:

• Principal
• Interest
• Taxes (property tax)
• Insurance (homeowner's, and PMI if your down payment is under 20%)

People budget for principal and interest, forget taxes and insurance, then wonder why their payment is hundreds more than the mortgage calculator's bare number suggested.

Worked example: a $90,000 salary

Let's run the full calculation on a $90,000 annual salary.

Step 1 — gross monthly income.

90,000 / 12 = 7,500 per month

Step 2 — the front-end ceiling (28%).

7,500 x 0.28 = 2,100 per month for housing

So total PITI should stay at or below $2,100 a month. You can confirm any percentage like this quickly with the Percentage Calculator — it's the same 28% of 7,500 calculation.

Step 3 — the back-end ceiling (36%).

7,500 x 0.36 = 2,700 per month for ALL debt

That $2,700 includes housing. Suppose you have a $400 car payment and $150 in minimum student loan payments — $550 of existing debt. Then the housing portion that fits under the back-end rule is:

2,700 - 550 = 2,150 per month for housing

Step 4 — take the lower ceiling. Front-end allows $2,100; back-end allows $2,150. The binding limit is the smaller one: $2,100 a month for total housing cost. If your existing debts were heavier — say a $700 car payment and $400 in student loans — the back-end math would give 2,700 minus 1,100 = $1,600, and that would become your ceiling instead. This is why two people on identical salaries can afford very different houses.

From monthly payment to home price

Now we work backward from $2,100 of PITI to an actual price. The mortgage payment is only part of that $2,100 — taxes and insurance eat into it first.

Assume:

• Property tax of 1.1% of home value per year
• Homeowner's insurance of $1,500 per year
• A 20% down payment (so no PMI)
• A 30-year fixed rate of 7%

On a home priced around $300,000, the non-mortgage costs run roughly:

Property tax: 300,000 x 0.011 / 12 = 275 per month
Insurance:    1,500 / 12           = 125 per month
Tax + insurance subtotal           = 400 per month

That leaves for principal and interest:

2,100 - 400 = 1,700 per month

A $1,700 monthly principal-and-interest payment at 7% over 30 years supports a loan of roughly $255,000. Add the 20% down payment and you land near a $300,000 home — which is internally consistent with the tax and insurance numbers above. Plug the loan amount, 7% rate, and 30-year term into the Mortgage Calculator to see the exact principal-and-interest figure and the full amortization.

So on a $90,000 salary with moderate existing debt and a 20% down payment, a sensible house price lands around $300,000. Now watch how fragile that number is.

How the inputs move the number

Small changes to the assumptions swing affordability hard.

Down payment. With less than 20% down, you pay PMI (private mortgage insurance), often 0.5% to 1% of the loan per year. On a $255,000 loan, 0.7% PMI adds about $149 a month. That comes straight out of your $1,700 principal-and-interest room, dropping it to roughly $1,551 — which supports a smaller loan and a cheaper house. A bigger down payment doesn't just shrink the loan; it can eliminate PMI entirely and free up monthly room.

Interest rate. Rate is the single most powerful lever. At 7%, $1,700 a month buys about $255,000 of loan. Drop the rate to 5% and that same $1,700 buys roughly $317,000 — about 24% more house for the identical payment. Raise it to 8% and the same $1,700 supports only around $232,000. You are buying a monthly payment, and the rate decides how much house that payment translates into.

Property tax. Rates vary enormously by location — under 0.5% in some states, over 2% in others. On a $300,000 home, the difference between 0.5% and 2% property tax is $125 versus $500 a month: a $375 monthly swing that has nothing to do with the house itself, only its zip code. High-tax areas quietly shrink the home price your salary supports.

Insurance. Coastal, wildfire, and flood-prone areas carry far higher premiums. A jump from $1,500 to $4,000 a year in insurance is another $208 a month off your principal-and-interest budget.

Why the bank's maximum isn't your budget

Lenders frequently approve borrowers up to a 43% back-end DTI, sometimes higher with strong credit. On our $90,000 salary, 43% is:

7,500 x 0.43 = 3,225 per month for all debt

That's $525 a month more than the conservative 36% figure — enough to push the approved house price well above $350,000. The bank will approve it because their risk is the loan, and the loan is collateralized by the house. Your risk is everything the DTI ratios ignore:

• Taxes. DTI uses gross income. You spend net income. After taxes, a $2,100 housing payment is a much larger slice of what actually hits your account.
• Retirement and savings. The 28/36 rule says nothing about funding a 401(k), emergency fund, or college savings.
• Real life. Groceries, childcare, healthcare, car repairs, and the cost of furnishing and maintaining the house itself. Older homes routinely cost 1% to 2% of their value per year in upkeep.
• No cushion. Maxing your DTI means a single income disruption turns the mortgage into a crisis.

A more livable target for most people is to keep housing closer to 25% of gross income, leaving genuine room to save and absorb shocks. On $90,000, that's $1,875 a month rather than $2,100 — a meaningfully smaller, calmer house.

Putting it together

• Start with the 28/36 rule as your ceiling, and use the lower of the two ratios.
• Budget the full PITI, not just principal and interest — taxes and insurance can be hundreds a month.
• Model how down payment, rate, and property tax move the price; the rate alone can swing affordability over 20%.
• Treat the bank's maximum as a hard limit, not a target. Aim below it.

Run the loan size through the Mortgage Calculator to get an exact payment, and use the Percentage Calculator to compute your own 28%, 36%, and 25% income ceilings in seconds. The right house is the one whose payment you'd still be comfortable making on a bad month — not the largest one a lender is willing to underwrite.