How Much House Can You Afford in 2026: DTI Rules, Down Payment, and What Lenders Really Check

The question of how much house you can afford has two different answers. One is what a lender will approve you for, and the other is what you can actually sustain financially without putting your household under stress. These two numbers are often different, and understanding both before you start shopping prevents the regret that comes from buying at the top of your approval range and discovering that the payment is more than your budget comfortably handles.

Lenders use specific formulas to determine maximum loan amounts. Understanding those formulas helps you know where you stand before you apply, how to improve your position, and whether a lender's maximum is actually your personal maximum or just their risk ceiling. Run your numbers through our mortgage calculator to see estimated monthly payments at different price points.

The Debt-to-Income Ratio: How Lenders Measure Affordability

The debt-to-income ratio, commonly called DTI, is the most important number in mortgage qualification. It is calculated by dividing your total monthly debt payments by your gross monthly income before taxes. Lenders use two versions of this ratio.

The front-end ratio, sometimes called the housing ratio, measures only your housing costs as a percentage of gross income. Housing costs include principal, interest, property taxes, homeowners insurance, and if applicable, mortgage insurance and HOA fees. Most conventional lenders prefer this ratio to be no higher than 28 percent. Some loan programs allow up to 31 or 33 percent.

The back-end ratio includes all monthly debt obligations, meaning housing costs plus car payments, student loans, minimum credit card payments, and any other recurring debt. For conventional loans, the standard maximum back-end DTI is 43 percent. FHA loans allow back-end DTI up to 50 percent in some cases with compensating factors. VA loans have more flexible DTI limits, which is one reason VA loans allow veterans to buy more home than they might qualify for with a conventional loan.

The 28/36 Rule as a Personal Budget Guideline

The 28/36 rule is a well-established personal finance guideline that aligns roughly with conventional lending standards but is intended for personal budgeting rather than just loan qualification. The rule says your housing costs should not exceed 28 percent of your gross income and your total debt obligations should not exceed 36 percent.

A household earning $8,000 per month before taxes would limit housing costs to $2,240 per month under the 28 percent guideline and total debt payments to $2,880 per month under the 36 percent guideline. If that household also has $400 per month in car payments and $200 per month in minimum student loan payments, their remaining debt capacity under the 36 percent rule is $2,280 for housing rather than the full $2,240.

The 28/36 rule is more conservative than what many lenders will approve. A lender might approve a DTI of 45 or 50 percent in certain programs. Whether that higher payment is genuinely manageable for your household depends on your other expenses, your income stability, your savings cushion, and your lifestyle. Many people who maximize their lender approval find themselves house-rich and cash-poor in their first years of homeownership.

How Income Is Calculated for Mortgage Qualification

Lenders use qualifying income, which is not necessarily the same as what you earn. Salaried employees with consistent pay are the straightforward case: your gross monthly salary is your qualifying income. For hourly employees, lenders typically use the two-year average of total hours worked to calculate qualifying income.

Self-employed borrowers face more scrutiny. Lenders generally use the net income shown on tax returns rather than gross revenue. Many self-employed people minimize taxable income through deductions, which is good for taxes but bad for mortgage qualification. If your tax returns show $50,000 in net income but you think of yourself as earning much more, your lender will use the $50,000 figure. Some bank statement loans allow self-employed borrowers to qualify on gross deposits rather than net taxable income, but these typically carry higher interest rates.

Bonus and commission income is generally included at a two-year average if you have received it consistently for at least two years. One-time bonuses or recently started commission positions may not qualify. Overtime income may be included if it has been consistent for two years and the employer indicates it is likely to continue. Rental income from investment properties is typically counted at 75 percent of gross rent to allow for vacancy and expenses.

Down Payment and How It Affects Your Buying Power

A larger down payment reduces your loan balance, which reduces your monthly principal and interest payment, which in turn improves your DTI and lets you qualify for a more expensive home. There is also a cost threshold that matters: putting 20 percent down on a conventional loan eliminates private mortgage insurance, which typically costs 0.5 to 1.5 percent of the loan amount annually. On a $400,000 loan, that is $2,000 to $6,000 per year, or $167 to $500 per month. Eliminating that expense meaningfully improves the affordability of the payment.

FHA loans allow down payments as low as 3.5 percent with a credit score of 580 or higher. Conventional loans allow as little as 3 percent down through certain programs for first-time buyers. VA loans require no down payment at all for eligible veterans. Each of these low-down-payment options comes with tradeoffs including mortgage insurance costs or funding fees that raise the total cost of homeownership.

Credit Score Requirements and Their Impact

Your credit score affects both whether you qualify and what interest rate you receive. Conventional loans typically require a minimum score of 620, though many lenders prefer 680 or higher to offer competitive rates. FHA loans accept scores as low as 500 with a 10 percent down payment, or 580 with 3.5 percent down. VA and USDA loans have their own guidelines.

The interest rate difference between a 680 score and a 760 score on a conventional loan can be 0.5 to 1.0 percentage points. On a $350,000 loan over 30 years, a one percentage point difference in rate results in roughly $70 to $75 more per month and approximately $25,000 in additional total interest over the life of the loan. This is why improving your credit score before applying, rather than rushing to buy while your score is middling, can save a significant amount of money.

Property Taxes, Insurance, and HOA Fees

Many first-time buyers underestimate the non-interest costs of homeownership that are included in the monthly payment. Property taxes vary enormously by location. In states with high property taxes like New Jersey, Illinois, and Texas, annual taxes on a $400,000 home can exceed $8,000 to $12,000 per year, adding $667 to $1,000 per month to the payment. In states with lower property taxes like Hawaii or Alabama, the same home might incur $2,000 to $3,000 per year.

Homeowners insurance averages around $1,500 to $2,000 annually for a typical single-family home, though premiums in hurricane-prone or wildfire-prone areas have risen dramatically in recent years. Flood insurance, if required because the property is in a flood zone, adds additional annual cost that varies widely by flood risk.

HOA fees in condo and planned development communities can range from $100 to over $1,000 per month. Lenders include HOA fees in the front-end DTI calculation, which means a property with a $500 per month HOA fee effectively has a $500 higher monthly cost that reduces what you can qualify for in the mortgage itself.

A Realistic Affordability Formula

A straightforward starting estimate is to multiply your gross annual income by three to four times. A household earning $100,000 per year can generally afford a home in the $300,000 to $400,000 range using this rule of thumb, assuming manageable existing debt and a reasonable down payment. In high-cost markets like San Francisco, New York, or Seattle, local incomes and prices are both higher, and the multiplier alone does not capture the full picture of what is financially sustainable.

The most accurate way to determine what you can afford is to get pre-approved by a lender, which gives you a specific number based on your actual income, debts, and credit history. Then apply the 28 percent housing ratio guideline to determine whether the lender's maximum represents a genuinely comfortable payment for your budget or a ceiling you should stay well below.