Start With Your Budget, Not the House

When it comes to buying a home, the biggest mistake people make is looking at homes before understanding what they can afford. It’s not just about how much a lender will approve—it’s about how much fits your monthly budget.

Before you start shopping, let’s look at the key numbers that determine your price range and monthly payment.

The 28/36 Rule: A Simple Affordability Guideline
Most lenders use the “28/36 rule” as a starting point:

• 28% of your gross monthly income can go toward housing (mortgage, taxes, insurance, HOA)

• 36% is the total for all debt payments (including credit cards, student loans, car loans, etc.)

Example:
If you earn $6,000/month before taxes:

• 28% = $1,680 for total housing

• 36% = $2,160 for all debts combined

Source: https://www.investopedia.com/terms/t/twenty-eight-thirty-six-rule.asp

What Affects Your Monthly Mortgage Payment?
Your monthly mortgage payment includes more than just the loan itself. Here’s what goes into it:

• Principal & Interest: Based on your loan size and interest rate

• Property Taxes: Varies by location

• Homeowners Insurance: Required by lenders

• Mortgage Insurance (PMI): Required if you put down less than 20%

• HOA Fees: If you’re in a condo or planned community

Even a $50/month increase in insurance or taxes can affect your affordability.

Use a Mortgage Calculator to Run the Numbers
Try a mortgage calculator to estimate your monthly payments based on home price, interest rate, down payment, and loan term.

• NerdWallet Mortgage Calculator

• Bankrate Calculator

Most calculators also let you add in taxes, insurance, and PMI so you get a full monthly snapshot.

Other Factors That Influence What You Can Afford

• Credit Score: Better scores = lower interest rates

• Debt-to-Income Ratio (DTI): Lower DTI = higher affordability

• Down Payment: Bigger down = smaller monthly payment

• Interest Rate: A 1% difference in rate can mean hundreds more or less per month

Source: https://www.consumerfinance.gov/owning-a-home/loan-options/

Bottom Line
How much home you can afford depends on more than just your loan approval. It’s about what makes sense for your monthly budget, your long-term goals, and how comfortable you are with your payments.

The best way to get an accurate number? Talk to a loan advisor who can help you factor in all the details—not just the headline rate.