How Much House Can I Afford? A Practical Guide for First-Time Buyers

A young couple sits at their kitchen table with a laptop open to a dozen browser tabs of house listings. They're not looking for anything extravagant, just enough room for themselves and maybe a few kids down the line. Their main concern is getting locked into a mortgage payment that leaves them stretched thin every month. So they find themselves stuck on the same question most first-time buyers ask: how much house can we actually afford?

Unfortunately there isn’t one magic number, but there are a few things you can measure to give yourself a workable range. Affordability depends on your income, your existing debts, how much you're putting down, and the rate you qualify for. Most lenders use a version of what's called the 28/36 rule: no more than 28% of your gross monthly income going toward housing costs, and no more than 36% going toward total debt, including that housing payment. 

In this guide, we'll walk through an example using real numbers, so you can plug in your own income and debt to get a realistic sense of your range before you start touring homes.
 

The 28/36 Rule

The 28/36 rule is something most lenders reference when they talk about affordability, and it's really two numbers working together. 

The first is your front-end ratio — no more than 28% of your gross monthly income (that's before taxes, not your take-home pay) should go toward housing costs alone: principal, interest, property taxes, homeowners insurance, and any HOA dues. 

The second is your back-end ratio — no more than 36% of that same gross monthly income should go toward all of your debt combined, housing included. That means your car payment, student loans, credit card minimums, and anything else you're paying monthly all get added to the housing number before the ratio is checked.

This rule is a commonly referenced guideline, not a universal cutoff. Plenty of buyers get approved above 36% depending on their loan type, credit profile, and lender, and some conservative lenders hold to it more strictly than others. Think of it as a quick check you can run on your own before you talk to a loan officer, not a pass/fail test.

If that back-end number sounds familiar, it's the same ratio lenders call your debt-to-income ratio, or DTI. We cover the full mechanics of DTI in Debt-to-Income Ratio: What It Is and Why It Matters for Your Mortgage.
 

Five Important Factors When Deciding What You Can Afford

The 28/36 rule gives you a ratio, but the ratio is only as good as what you plug into it. Here's some factors that should be considered:

Gross Monthly Income 

This is the base the calculation starts from and everything else that follows is measured against it. If your income is a straightforward salary, this number is easy to pin down. If it includes bonuses, overtime, commission, or self-employment earnings, lenders typically want to see it verified and consistent over time (often two years of history) before counting it at full value.

Existing Monthly Debt 

Car payments, student loans, credit card minimums, personal loans, or anything else with a fixed monthly payment gets weighed alongside your future housing payment. This is the same debt we referenced when we introduced your back-end ratio above, and it's the number that turns your front-end ratio into your back-end ratio.

Down Payment 

A bigger down payment lowers the amount you need to borrow (which lowers your monthly payment) and it can eliminate private mortgage insurance (PMI) entirely once you cross the 20% threshold on a conventional loan. PMI is its own monthly cost, so avoiding it can meaningfully change what you can afford. 

Credit Score 

Your score determines whether you're approved and your interest rate. Score minimums and tiers vary by loan type. To fully understand your credit score and how it factors into buying a house, check out this resource: What Credit Score Is Needed to Buy a House in 2026?

Interest Rate and Loan Term 

Even a small difference in rate (a half a percentage point) can shift your affordable home price by tens of thousands of dollars, because it changes how much of each payment goes to interest versus principal. A 30-year loan spreads payments out for a lower monthly cost (and a higher affordable home price), while a 15-year loan means a higher monthly payment but far less interest paid over the life of the loan. Neither is universally "better", it often depends on whether your priority is maximizing what you can buy now or minimizing what you pay long-term.
 

How Your Down Payment Changes What You Can Afford

Your down payment does more than reduce your loan amount, it can change which loan programs are a good fit and whether you're paying for mortgage insurance at all. Here's how the minimums typically break down:
 

*Down payment minimums vary by lender, credit profile, and program guidelines — check with an Onity loan officer for current requirements on your specific loan type.

Other Home Costs to Consider Beyond Principal and Interest

Before you settle on a number, it's also worth looking into and budgeting for:

• Property taxes: These vary significantly by location, sometimes even block to block, so don't rely on a national average. Check the actual rate for the area you're house hunting in, since it can meaningfully shift your monthly housing cost.
• Homeowners insurance: A separate monthly or annual cost that gets rolled into most mortgage payments through an escrow account, and one that's easy to underestimate if you're pricing based on a friend's or family member's premium in a different area.
• PMI or MIP, if applicable: As covered above, private mortgage insurance (conventional) or a mortgage insurance premium (FHA) can add a real monthly cost on top of principal and interest, depending on your loan type and down payment.
• HOA dues, if applicable: Common in condos, townhomes, and many newer subdivisions. This is a fixed monthly or quarterly cost that factors into your total housing expense the same way a mortgage payment does.
• Ongoing maintenance: Budgeting roughly 1% of your home's value per year is a common planning rule of thumb for repairs and upkeep. 
• Closing costs: Typically 2–5% of the purchase price, these are paid upfront at closing rather than folded into your monthly payment, so they need their own line in your savings plan, separate from your down payment.

Affordability by Loan Type (Quick Comparison)

If you decide to take out a loan to help cover the cost of your home, you’ll want to look at the different options available to you and how they factor into cost. Here's a comparison of the most common loan types first-time buyers consider and how down payment and back-end DTI come into play:

*DTI ceilings vary by lender, credit profile, and compensating factors — an Onity loan officer can confirm what applies to your specific situation.
 

A Simple Way to Estimate Your Max Home Price (Example)

Now it’s time to put all of this together in a real example. Say you and a co-borrower have a combined gross annual income of $75,000 (about $6,250 a month before taxes). You're carrying $400 a month in existing debt (a car payment and a couple of credit cards). You've saved enough for a 5% down payment, and you're planning on a 30-year loan. For this example, we'll assume a mortgage rate of 6.5%.
 

Breaking Down the Math Step by Step

1. Find your front-end limit: Multiply your gross monthly income by 28%: $6,250 × 0.28 = $1,750. That's the most you'd want going toward housing costs alone — principal, interest, taxes, insurance, and PMI combined.
2. Check it against your back-end limit: Multiply your gross monthly income by 36%: $6,250 × 0.36 = $2,250. Subtract your existing debt: $2,250 − $400 = $1,850. That's the most housing expense your back-end ratio would allow.
3. Take the lower number: Your front-end limit (1,750)islowerthanwhatyourback-endratiowouldallow(1,850), so $1,750 is your actual housing budget. Lenders use whichever ratio is more restrictive.
4. Set aside taxes, insurance, and PMI: Before you get to principal and interest, part of that $1,750 needs to cover property taxes, homeowners insurance, and — since you're putting down less than 20% — PMI. For this example, we'll estimate those three at a combined $350 a month (this will vary by location and shouldn't be treated as a national average, as covered above). That leaves $1,400 a month for principal and interest.
5. Translate that payment into a loan amount: At a 6.5% rate over a 30-year term, a $1,400 monthly principal-and-interest payment supports a loan of roughly $221,500.
6. Add back your down payment: Since you're putting 5% down, that $221,500 loan represents 95% of the purchase price. Divide it out, and you land on a target home price of roughly $233,000, with about $11,700 needed for your down payment.

At these numbers, this buyer could target a home price of roughly $233,000.

*This is illustrative math, not a quote or pre-approval. Your real number depends on your actual income, debt, location, rate, and lender. A loan officer looking at your full financial picture is the only way to get a dependable figure.
 

Figure Out How Much House You Can Afford With the Help of an Onity Loan Officer

If all of this math feels like a lot to take in, that's a completely normal reaction. You don't need a finance background to buy a home, and you shouldn't have to become an amateur underwriter to get a straight answer. If running these numbers yourself isn't something you're comfortable doing, that's exactly what a loan officer is there for. 

Ready to see where you actually stand? An Onity loan officer can help turn an estimate into a real, personalized number based on your full financial picture. Buying a home shouldn’t have to be complicated, and we’re here to help you simplify the process. Reach out to start your home buying journey today!

This is for informational purposes only. This is not intended as legal or financial advice.