Lenders will often approve you for a bigger mortgage than you can comfortably live with. A simple rule used by many US lenders and planners keeps you on the safe side: the 28/36 rule.
The 28/36 rule
- Spend no more than 28% of your gross monthly income on housing — mortgage principal and interest, property tax, home insurance, PMI and HOA dues.
- Keep all debt payments (housing plus car loans, student loans and credit cards) under 36%.
On a $100,000 salary, gross monthly income is $8,333, so the housing budget is about $2,333 a month.
Try the calculatorMortgage CalculatorMonthly payment with tax, insurance & PMI→What that buys at different incomes
Assumptions: 20% down payment, 30-year fixed rate at 6.5%, property tax 1.1% of the price per year, home insurance $1,500 a year, no HOA.
| Household income | Housing budget (28%) | Approximate home price |
|---|---|---|
| $60,000 | $1,400 / month | about $213,000 |
| $100,000 | $2,333 / month | about $370,000 |
| $150,000 | $3,500 / month | about $565,000 |
How rate and down payment change the answer
For the same $100,000 income:
| Scenario | Approximate home price |
|---|---|
| 6.0% rate, 20% down | about $387,000 |
| 6.5% rate, 20% down | about $370,000 |
| 7.0% rate, 20% down | about $354,000 |
| 6.5% rate, 10% down (with PMI) | about $316,000 |
Each half-point of interest rate moves your budget by roughly $16,000–17,000. A smaller down payment cuts it further because the loan is bigger and you pay private mortgage insurance (PMI) until you reach 20% equity.
Example: a $400,000 home
With 20% down ($80,000), a 30-year loan at 6.5%:
| Monthly cost | Amount |
|---|---|
| Principal and interest | $2,023 |
| Property tax (1.1%) | $367 |
| Home insurance | $125 |
| Total | $2,514 |
| Total interest over 30 years | about $408,000 |
A 15-year loan at 6.0% raises the payment to about $3,192 a month but cuts total interest to about $166,000 — saving roughly $242,000.
Costs people forget
- Closing costs — commonly 2–5% of the price.
- Maintenance — a common rule of thumb is about 1% of the home's value each year.
- HOA dues, utilities, furniture and moving costs.
- An emergency fund — keep several months of expenses after you buy.
How much down payment do you need?
You don't always need 20%. Some conventional loans accept as little as 3% and FHA loans 3.5%, but you will pay mortgage insurance and a larger loan. Use the savings goal calculator to see how much to save each month to reach your target.
A simple plan
- Work out 28% of your gross monthly income.
- Subtract your other monthly debts and check you stay under 36%.
- Try prices, rates and down payments in the mortgage calculator until the total monthly payment fits.
- Get pre-approved by a lender — and remember you can borrow less than the maximum offered.
This article is general information, not personal financial, tax or legal advice. Rules and rates change — check the latest figures with an official source or a qualified adviser. Read our disclaimer.