How Much House Can You Afford?
The most widely used rule for home affordability is the 28/36 rule: your monthly housing costs should not exceed 28% of your gross monthly income, and your total debt payments (housing + all other debts) should not exceed 36%. However, lenders will approve loans up to a 43–50% debt-to-income ratio, which can lead to being "house poor."
The 28% Rule — Front-End Ratio
Your housing payment (mortgage principal + interest + property taxes + insurance + HOA fees) should be at most 28% of your gross monthly income. On a $80,000/year salary ($6,667/month), that means a maximum housing payment of about $1,867/month.
The 36% Rule — Back-End Ratio (DTI)
Your total monthly debt payments — housing plus car loans, student loans, credit cards, and any other recurring debt — should stay below 36% of gross income. This is the ratio mortgage lenders scrutinize most carefully. Even if you technically qualify for a larger mortgage, staying below 36% keeps your finances stress-free.
How Much Down Payment Do You Need?
- 3–5% — Minimum for conventional loans (with PMI) and FHA loans
- 10% — Reduces your monthly payment meaningfully; PMI still required on conventional loans
- 20% — Eliminates PMI entirely (saving $100–$300/month), gets you the best rates
- 0% — Available for VA loans (military) and USDA loans (rural areas)
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Frequently Asked Questions
How much house can I afford on a $70,000 salary?
On a $70,000/year salary, most lenders approve a home price of roughly $250,000–$320,000 depending on your down payment, debts, and current interest rates. Using the 28% rule, your maximum monthly housing payment is about $1,633. At current rates (~6.5%), that translates to roughly a $260,000 loan with 20% down.
What credit score do I need to buy a house?
For a conventional loan, lenders typically require a minimum 620 credit score, though 740+ gets you the best rates. FHA loans allow scores as low as 580 (with 3.5% down) or even 500 (with 10% down). VA loans have no official minimum but lenders typically require 620+.
What costs do first-time homebuyers often underestimate?
Beyond the down payment, budget for: closing costs (2–5% of loan amount), home inspection ($300–$500), moving costs, immediate repairs and furnishing, property taxes (often paid in escrow), homeowner's insurance, and an emergency fund for maintenance (budget 1–2% of home value per year).
Should I buy now or wait for rates to drop?
The saying "marry the house, date the rate" holds true — you can always refinance if rates drop, but you can't change what you paid for the house. If you find a home that fits your budget at today's rates and plan to stay 5+ years, buying usually makes more financial sense than renting while waiting for rates to fall.