The 28/36 Rule — Your Starting Point
Every financial advisor starts with the same rule: the 28/36 rule. It's been the gold standard for home affordability for decades.
The 28/36 Rule Explained
28%: Your monthly mortgage payment (principal + interest + taxes + insurance) should not exceed 28% of your gross monthly income.
36%: Your total monthly debt payments (mortgage + car + student loans + credit cards) should not exceed 36% of your gross monthly income.
So if you earn $7,000/month gross:
- Maximum mortgage payment: $7,000 × 28% = $1,960/month
- Maximum total debt: $7,000 × 36% = $2,520/month
How Much House Does That Buy in 2025?
With mortgage rates around 6.8% in 2025, here's what different income levels can afford:
| Annual Income | Max Monthly Payment | Estimated Home Price |
|---|---|---|
| $50,000 | $1,167 | ~$180,000 |
| $75,000 | $1,750 | ~$270,000 |
| $100,000 | $2,333 | ~$360,000 |
| $150,000 | $3,500 | ~$540,000 |
| $200,000 | $4,667 | ~$720,000 |
Assumes 20% down payment, 6.8% rate, 30-year fixed, including property tax and insurance estimates.
The 5 Factors That Determine Your Affordability
1. Your Gross Income
Lenders use your gross income (before taxes) to calculate affordability. Include all income sources — salary, freelance, rental income, etc. If you're buying with a partner, combine both incomes.
2. Your Down Payment
The more you put down, the less you borrow — which means lower monthly payments and less interest paid overall.
Putting less than 20% down means you'll pay PMI (Private Mortgage Insurance) — typically 0.5% to 1.5% of the loan amount per year, adding $100-$300/month to your payment.
3. Interest Rate
In 2025, rates are hovering around 6.5-7%. Even a 0.5% difference has a massive impact:
| Rate | Monthly Payment (300k loan) | Total Interest (30yr) |
|---|---|---|
| 6.5% | $1,896 | $382,560 |
| 6.8% | $1,953 | $403,080 |
| 7.0% | $1,996 | $418,560 |
| 7.5% | $2,098 | $455,280 |
4. Loan Term
15-year mortgages have higher monthly payments but you pay dramatically less interest. 30-year mortgages are more affordable month-to-month but cost much more over time.
5. Your Debt-to-Income Ratio (DTI)
Lenders look at your DTI ratio — your total monthly debt divided by gross monthly income. Most lenders want DTI below 43%. The lower the better.
Hidden Costs Most Buyers Forget
⚠️ Don't Forget These Costs
- 🏠 Property Tax: 0.5% – 2.5% of home value per year
- 🔒 Homeowner's Insurance: ~$1,200-$2,000/year
- 🔧 Maintenance: Budget 1% of home value per year
- 📋 HOA Fees: $0-$1,000+/month depending on community
- 📝 Closing Costs: 2%-5% of loan amount (one-time)
- PMI: If down payment < 20%
Quick Affordability Formula
A simple rule of thumb: You can afford a home that costs 3-5x your annual salary.
- $60,000/year salary → $180,000 – $300,000 home
- $100,000/year salary → $300,000 – $500,000 home
- $150,000/year salary → $450,000 – $750,000 home
This is a rough estimate. Your actual affordability depends on your down payment, existing debt, and credit score.
How to Calculate Your Exact Number
The most accurate way is to simply run the numbers. Use our free mortgage calculator to plug in your specific situation — home price, down payment, rate, and term — and see your exact monthly payment instantly.
Calculate Your Mortgage Payment
Enter your numbers and see your exact monthly payment, total interest, and full amortization schedule.
Use Free Calculator →Bottom Line
In 2025, with rates above 6%, buying a home requires careful math. The 28% rule is a great starting point, but your real number depends on your down payment, existing debts, credit score, and local property taxes.
Before talking to any lender, know your numbers. Run the calculator, understand your monthly payment, and make sure it fits comfortably within your budget — not just technically, but practically.
A mortgage you can "afford" on paper but strains you every month is not a good mortgage.