🏠 Quick Affordability Rules
- • 28% Rule: Housing costs should be ≤28% of gross monthly income
- • 36% Rule: Total debt payments should be ≤36% of gross income
- • 3x Rule: Home price should be ~3x your annual household income
- • Hidden costs add 30-50% on top of your mortgage payment
The 28/36 Rule Explained
The 28/36 rule is the gold standard for mortgage affordability. It has two parts:
- 28% front-end ratio: Your total housing costs (mortgage principal + interest + property taxes + homeowner's insurance + HOA fees) should not exceed 28% of your gross monthly income.
- 36% back-end ratio: Your total debt payments (housing + car loans + student loans + credit cards + other debts) should not exceed 36% of your gross monthly income.
📊 Example: $75,000/year Salary
Based on 6.5% interest, 30-year fixed, average taxes & insurance
What's Included in Your Monthly Housing Cost?
Many first-time buyers are surprised that the mortgage payment is just the beginning. The true monthly cost includes:
- Principal & Interest — the actual loan payment
- Property Taxes — typically 1-2% of home value annually ($200-500/month)
- Homeowner's Insurance — $100-300/month
- PMI (Private Mortgage Insurance) — 0.5-1% annually if down payment is less than 20%
- HOA Fees — $0-500/month depending on the community
- Maintenance — budget 1% of home value per year ($250-400/month)
- Utilities — $200-400/month for a typical home
⚠️ The True Cost of a $300,000 Home
That's 48% more than just the mortgage payment!
How Much Down Payment Do You Need?
The down payment significantly impacts your affordability:
- 20% down — No PMI, lower monthly payments, best rates. On a $300K home: $60,000
- 10% down — PMI required but more accessible. On a $300K home: $30,000
- 3-5% down — Conventional or FHA loans. On a $300K home: $9,000-$15,000
- 0% down — VA loans (military) or USDA loans (rural areas)
Use our savings goal calculator to plan your down payment savings timeline.
Steps to Buy Your First Home
- Check your credit score — 740+ gets you the best rates; 620+ is the minimum for most loans
- Calculate affordability — Use our mortgage calculator for your specific numbers
- Save for down payment + closing costs — Budget 3-6% extra for closing costs
- Get pre-approved — Shop at least 3 lenders to compare rates
- Find a home within budget — Stay below your max to leave room for unexpected costs
- Get an inspection — Never skip this, it can save you tens of thousands
- Close and move in — Budget for moving costs and initial setup expenses
Rent vs. Buy: When Does Buying Make Sense?
Buying isn't always better than renting. Consider buying if you plan to stay 5+ years in the same area, have stable income, and can afford the all-in costs. Use our ROI calculator to compare the return on buying vs. investing the down payment in the stock market.
Ready to Calculate Your Budget?
Use our free tools to plan your home purchase.
Frequently Asked Questions
How much house can I afford on a $75,000 salary?
On a $75,000 salary, using the 28% rule, you can afford about $1,750/month for housing. With a 6.5% interest rate, 20% down, that translates to roughly a $280,000-$320,000 home depending on property taxes and insurance in your area.
What is the 28/36 rule for mortgages?
The 28/36 rule says: spend no more than 28% of gross monthly income on housing costs (mortgage + taxes + insurance), and no more than 36% on total debt payments (housing + car + student loans + credit cards).
How much should I put down on a house?
20% down is ideal because it avoids Private Mortgage Insurance (PMI) which costs 0.5-1% of the loan annually. However, many first-time buyers put down 3-5%. FHA loans require just 3.5%. Calculate your specific scenario with our mortgage calculator.