How Much House Can You Actually Afford?
Calculate your maximum home price based on income, debts, down payment, and 2026 mortgage rates. Uses the 28/36 rule that lenders use.
The 28/36 Rule: How Lenders Determine Your Limit
Most lenders use the 28/36 rule to determine how much you can borrow. Your total housing costs (mortgage, property tax, insurance, HOA) should not exceed 28% of your gross monthly income (front-end ratio). Your total monthly debt payments (housing + car loans + student loans + credit cards) should not exceed 36% of gross income (back-end ratio).
For a household earning $95,000/year ($7,917/month), the maximum housing payment under the 28% rule is $2,217/month. If you have $450/month in other debts, the 36% back-end limit gives you a maximum total of $2,850 — meaning your housing payment is capped at $2,400. The lower of the two limits applies.
Why the "Bank Approved" Amount Is Too High
Banks will often approve you for more than the 28/36 rule suggests — some lenders approve up to 43-50% back-end DTI for qualified borrowers. Just because you can be approved for a $500,000 mortgage does not mean you should take one. Financial advisors recommend keeping housing at 25% or less of gross income to maintain a comfortable budget with room for savings, emergencies, and lifestyle.
The difference between 28% and 25% may seem small, but on $95,000 income, it is $237/month — $2,844/year. Over 30 years, that breathing room compounds to tens of thousands of dollars in additional savings and investment returns.
How 2026 Mortgage Rates Affect Your Buying Power
Mortgage rates dramatically affect affordability. At 4% on a 30-year loan, $2,000/month in P&I buys a $419,000 loan. At 6.75%, that same payment only buys $308,000. That is a $111,000 difference in buying power from the rate alone — a 26% reduction in what you can afford.
In 2026, rates have stabilized in the 6.5-7.0% range after peaking above 7.5% in late 2023. The Federal Reserve has signaled gradual easing but rates are unlikely to return to the 3-4% range of 2020-2021 in the near term. Buy based on current rates, and refinance later if rates drop significantly.
Hidden Costs That Reduce Your Budget
Your mortgage payment is only part of the cost of homeownership. Budget for: property taxes (0.5-2.5% of home value annually, depending on state), homeowner's insurance ($1,200-3,000/year, higher in disaster-prone areas), maintenance (1-2% of home value per year), HOA fees ($200-600/month if applicable), and PMI (0.5-1% of loan annually if down payment is under 20%).
Every 1% increase in mortgage rates reduces your buying power by approximately 10%. Going from 4% to 7% rates means you can afford roughly 30% less house on the same income — which is exactly what happened from 2021 to 2023.
