Mortgage Calculator: How Much House Can You Actually Afford?

Getting pre-approved for a mortgage doesn’t mean you should borrow that much. Banks lend based on what they’re comfortable with — not what’s comfortable for your life.

The Two Rules of Home Affordability

Rule 1: The 28% Rule

Your monthly mortgage payment (principal + interest + taxes + insurance) should not exceed 28% of your gross monthly income. On $7,000/month gross income: maximum payment of $1,960.

Rule 2: The 36% Rule

Your total monthly debt payments — mortgage plus all other debt — should not exceed 36% of gross monthly income. If you have $500/month in other debt, your maximum mortgage payment is $2,020.

What’s Included in Your Monthly Mortgage Payment?

• Principal: The portion reducing your loan balance
• Interest: The lender’s fee
• Property Taxes: Typically 1–2% of home value annually, paid monthly into escrow
• Homeowner’s Insurance: Usually $100–$200/month
• PMI: Required if down payment is under 20%. Typically 0.5–1.5% of loan amount annually.

The True Cost of Buying a Home

• Closing costs: 2–5% of the purchase price
• Moving costs: $1,000–$5,000
• Immediate repairs: Have $5,000–$10,000 set aside
• Ongoing maintenance: Budget 1% of home value per year

Down Payment: How Much Do You Need?

• 3%: Minimum for conventional loans (with PMI)
• 3.5%: FHA loan minimum
• 20%: Eliminates PMI, gets better rates, keeps payment manageable

Keep at least 3–6 months of expenses in reserve after closing.

Real Numbers Example

Household gross income: $90,000/year ($7,500/month). 28% rule: $2,100 maximum housing payment. After taxes and insurance, approximately $1,550 available for principal + interest. At 6.8% for 30 years, that services ~$240,000 in loan. With 20% down, that means a home price of ~$300,000.

Q: Should I get a 15-year or 30-year mortgage?

A 15-year mortgage has higher payments but lower rate and half the total interest. A 30-year gives more cash flow flexibility. Many advisors suggest a 30-year while making extra payments when possible.

Q: How much should I have saved before buying?

Down payment + closing costs (3–5%) + 3–6 months emergency fund + 1% home value for repairs. On a $300,000 home with 10% down: roughly $48,000–$63,000 minimum.

The Bottom Line

Don’t let a lender’s pre-approval number set your budget. Use our Mortgage Calculator to run your own numbers first.