Reading Time — 8 minutes
Publication date: January 17, 2019
Actualization Date: November 17, 2025
Author
Opendoor Editorial Team
Our team combines AI-powered research with hands-on expertise from licensed real estate professionals to ensure that every article is accurate, clear, and up-to-date.
Contact: [email protected]
Reading Time — 8 minutes
January 17, 2019
November 17, 2025
Buying a home starts with one fundamental question: how much can you actually afford? The answer depends on your income, debts, down payment, and the type of loan you choose — and getting it right means the difference between financial comfort and monthly stress.
This guide walks through the 28/36 rule lenders use to evaluate your budget, and how different loan types can expand or limit your options.
Understand your home affordability
Home affordability is the maximum house price you can comfortably purchase based on your income, existing debts, and ongoing expenses. It determines both how much a lender may approve and what keeps your budget comfortable after you move in.
Lenders start with your gross monthly income — your earnings before taxes — and then subtract your monthly debt payments like car loans, student loans, and credit cards. What's left tells them how much you can put toward a mortgage payment each month. But here's the thing: what a lender approves and what feels comfortable to you might be two different numbers.
Key factors that affect how much mortgage you can afford
Several factors influence both lender approval and your comfort level. Some you can control right now, while others depend on market conditions.
Income stability: A steady employment history and predictable income streams strengthen your application. Lenders typically look for at least two years in the same field or job, though reasonable explanations for gaps often satisfy underwriters.
Debt-to-income ratio: Your DTI is total monthly debt payments divided by gross monthly income. Lenders set maximum DTI limits, and borrowers tend to feel most comfortable with housing costs near 28% and total debts near 36% of gross income.
Credit score: Higher credit scores generally unlock better interest rates and more loan options, which reduce monthly payments and expand affordability. A score of 760 or higher typically earns the best rates on conventional loans, while scores between 620 and 739 still qualify for most programs at higher rates.
Down payment size: A larger down payment reduces your loan amount, can eliminate private mortgage insurance (PMI), and lowers your monthly costs. However, you don't want to drain your savings completely — keeping a cash reserve for moving costs, home repairs, and emergencies is just as important.
Interest rate: Even small changes in rates can significantly change your monthly payment and the total interest paid over time. A 30-year mortgage at 6% versus 7% on a $300,000 loan means a difference of nearly $200 per month.
Loan term: Longer terms reduce monthly payments but increase total interest over the life of the loan, while shorter terms do the opposite. A 30-year mortgage offers lower monthly costs and more budget flexibility, while a 15-year mortgage builds equity faster and saves substantially on interest.
The 28/36 rule for determining mortgage affordability
The 28/36 rule suggests keeping housing costs under 28% of gross income and total debt payments under 36%. It's a helpful starting point, though individual circumstances, local costs, and lender programs can justify going above or staying below the guideline.
The 28% front-end ratio covers your mortgage principal, interest, property taxes, homeowners insurance, and HOA fees. The 36% back-end ratio includes all of those plus car loans, student loans, credit cards, and other recurring debts.
Modern lending has evolved beyond rigid rules. Some borrowers with excellent credit and substantial savings qualify at higher ratios, while others prefer to stay at 25% or lower for peace of mind.
How loan type changes your budget
Different loan programs have varying requirements and benefits that influence your rate, mortgage insurance, and down payment.
Conventional
Standard loans that typically require stronger credit and larger down payments, but often provide competitive rates and lower long-term costs for well-qualified borrowers. Conventional loans follow guidelines set by Fannie Mae and Freddie Mac, with minimum credit scores usually around 620 and down payments as low as 3% for first-time buyers.
PMI is required below 20% down but can be removed once you reach 20% equity.
FHA
Government-backed loans with lower down payment minimums and more flexible credit standards. They include upfront and ongoing mortgage insurance premiums that affect monthly costs.
FHA loans accept credit scores as low as 580 with 3.5% down, or 500 with 10% down. The trade-off is higher insurance costs — an upfront premium of 1.75% of the loan amount plus annual premiums between 0.45% and 1.05% depending on loan size and term.
VA
Loans for eligible veterans and service members with no down payment requirement and no ongoing mortgage insurance, often resulting in lower monthly payments. VA loans also typically offer competitive interest rates and more lenient credit requirements than conventional loans.
Borrowers pay a one-time funding fee that ranges from 1.4% to 3.6% of the loan amount depending on down payment size and whether it's a first-time or subsequent use.
Jumbo
Loans above conforming limits with stricter credit, income, and reserve requirements. Common in high-cost markets and for luxury properties.
Jumbo loans typically require credit scores of 700 or above, down payments of at least 10% to 20%, and cash reserves covering six to 12 months of payments.
USDA
Rural development loans that offer no down payment in eligible areas, with income limits and property location restrictions. USDA loans require an upfront guarantee fee of 1% and an annual fee of 0.35%, both lower than FHA insurance costs.
Properties must be in USDA-designated rural areas, which include many suburban and small-town locations.
Sample budgets by salary and down payment
Income and down payment size can shift your maximum affordable home price. The ranges below assume typical taxes, insurance, and HOA costs plus a market-rate 30-year fixed mortgage.
Salary | 3% down | 10% down | 20% down |
$50,000 | $160,000–$200,000 | $180,000–$220,000 | $200,000–$240,000 |
$75,000 | $240,000–$300,000 | $270,000–$330,000 | $300,000–$360,000 |
$100,000 | $320,000–$400,000 | $360,000–$440,000 | $400,000–$500,000 |
$150,000 | $480,000–$600,000 | $540,000–$680,000 | $600,000–$800,000 |
At $50,000 salary, affordable home price ranges typically fall between about $160,000 and $240,000 depending on down payment size and local taxes and insurance. With higher income at $75,000, buyers often qualify for about $240,000 to $360,000, with larger down payments pushing the top end higher.
Six-figure earners at $100,000 may see ranges from roughly $320,000 to $500,000, depending on debts, rates, and property costs. High-income buyers at $150,000 may afford approximately $480,000 to $800,000, potentially entering jumbo territory in high-cost areas.
Ways to improve your home affordability number
Several actions before shopping can boost buying power and qualify you for better loan terms.
Paying down high-interest debt directly improves your DTI and can increase your maximum approved mortgage amount. Even paying off one credit card or car loan can free up hundreds of dollars in monthly capacity.
Raising your credit score by paying on time, lowering credit utilization, and correcting any credit report errors can qualify you for better rates. A 40-point score improvement can reduce your interest rate by a quarter to half a percentage point.
Increasing your down payment lowers your loan amount and monthly payment and may remove PMI, improving affordability. Even an extra $5,000 to $10,000 can meaningfully expand your options.
Selling first? How a cash offer can boost buying power
Selling your current home quickly can simplify your next purchase, align timing, and improve your financial position for a stronger offer.
A faster sale can help you avoid overlapping payments during the transition from one home to the next. This frees up cash flow and reduces the stress of juggling two properties.
Applying sale proceeds to your next down payment reduces your loan amount and monthly costs and can remove mortgage insurance. Get a cash offer to see how much flexibility you could unlock.
Frequently asked questions about home affordability
How do high property taxes affect my maximum budget?
Property taxes are part of your monthly housing costs, so higher taxes reduce the mortgage amount you can afford. Research local tax rates early to set realistic expectations.
Can I get approved if my DTI is slightly above standard guidelines?
Some lenders may allow higher DTIs with strong credit, larger down payments, or substantial cash reserves. You can also improve your odds by paying down debt or increasing income before applying.
Is paying PMI better than waiting to save more down payment?
PMI can enable earlier homeownership but adds a monthly cost. Weigh PMI payments against rising rents, potential home price appreciation, and the time needed to save a larger down payment.
How often should I recalculate my house affordability?
Reassess when your income or debts change, or when interest rates move meaningfully. An annual review helps keep your budget aligned with current market conditions.