"How much house can I afford?" is one of those questions that sounds simple until you actually try to answer it. The honest answer depends on more than just the price tag on a listing — it depends on your interest rate, your down payment, your local tax rate, and how a lender weighs your income against your other debts. Here's how to actually think through it, with real numbers.

What's Actually In Your Payment (PITI)

Most people mentally budget for "the mortgage" as if it's just one number — pay off the loan, done. In reality, your monthly housing payment is usually made up of four separate pieces, often bundled into a single bill by your lender. Mortgage professionals call this PITI:

  • Principal — the portion of your payment that pays down the actual amount you borrowed.
  • Interest — what the lender charges you for borrowing the money, calculated on your remaining balance.
  • Taxes — property tax, usually collected monthly and held in escrow, then paid to your local government on your behalf.
  • Insurance — homeowners insurance, also often escrowed and paid annually by the lender.

If your down payment is under 20% of the home's price, there's commonly a fifth piece: PMI (private mortgage insurance). PMI protects the lender, not you, in case you default — and it's an extra monthly cost that disappears once your equity crosses that 20% threshold. This is why the "sticker price" monthly payment you might do in your head (just principal and interest) is often noticeably lower than what actually shows up on your bill.

The 28/36 Rule

Lenders need some rule of thumb to gauge whether a monthly payment is sustainable relative to your income, and the one you'll hear most often is the 28/36 rule:

  • 28% — your total housing payment (the full PITI) generally shouldn't exceed about 28% of your gross (pre-tax) monthly income.
  • 36% — your total debt payments, including the mortgage plus things like car loans, student loans, and credit cards, generally shouldn't exceed about 36% of gross monthly income.

This is a widely used guideline, not a law — actual approval depends on the specific lender, the loan program, your credit score, and your overall financial picture. Some lenders will approve borrowers well above 36% total debt-to-income, especially with strong credit or a larger down payment; others are stricter. Treat 28/36 as a sanity check for your own budget, not a guarantee of what you'll be approved for.

Tip: Run the 28/36 numbers against your take-home reality, not just theoretical approval. Being "approved" for a payment that eats 30% of your income can still feel tight once you add groceries, utilities, and everything else that isn't in PITI.

How Your Down Payment Changes Things

Your down payment does two jobs at once, and it's worth separating them:

1. It shrinks the loan amount. A bigger down payment means you're borrowing less, which directly lowers your principal and interest payment. On a $400,000 home, the difference between putting down 10% ($40,000, borrowing $360,000) and 20% ($80,000, borrowing $320,000) is $40,000 less debt — and less interest accumulating on top of it for the next 30 years.

2. It determines whether you pay PMI. Cross the 20% down payment line on a conventional loan and PMI typically isn't required at all. Come in under 20%, and PMI gets added to your monthly payment — often somewhere in the range of 0.3% to 1.5% of the loan amount per year, divided into monthly installments, until you build enough equity to have it removed.

So a smaller down payment doesn't just mean a bigger loan — it can mean an extra recurring cost stacked on top of that bigger loan, which compounds the effect on your monthly budget.

Why the Interest Rate Matters So Much

Because a mortgage runs for so long — typically 30 years — even a small difference in interest rate turns into a very large difference in total cost. This isn't an exaggeration for effect; here's the actual math.

Take a $320,000 loan on a 30-year fixed term. Using the standard amortization formula:

  • At 6.5%: monthly principal & interest payment is $2,022.62. Over 30 years, total interest paid is $408,142.36.
  • At 7.0%: monthly principal & interest payment is $2,128.97. Over 30 years, total interest paid is $446,428.47.

That half-a-percentage-point difference raises your monthly payment by about $106, but the real story is the total interest: you'd pay roughly $38,286 more over the life of the loan at 7% than at 6.5% — on the exact same loan amount, for the exact same house. This is why shopping around for a lower rate, improving your credit score before applying, or paying points to buy down a rate can be worth serious effort: the payoff compounds over three decades.

How to Estimate Your Payment

You don't need to run amortization formulas by hand to get a realistic number. Our free Mortgage Calculator does the full PITI breakdown in your browser:

  1. Enter the home price and your planned down payment.
  2. Choose your loan term (commonly 15 or 30 years) and enter the interest rate you're expecting or have been quoted.
  3. Optionally add your estimated annual property tax, annual homeowners insurance, and monthly PMI if your down payment is under 20%.
  4. Get your full monthly payment breakdown — principal & interest separated out from taxes, insurance, and PMI — plus total interest over the life of the loan.

Try adjusting the down payment or interest rate a few times to see how sensitive your payment is to each — it's often more revealing than any single estimate.

FAQ

Is this the same number a lender will pre-approve me for? No. This is an estimate for planning purposes only. A lender's actual pre-approval depends on your verified income, credit score, existing debt, employment history, and that specific lender's underwriting guidelines — all things a calculator can't see. Use this to sanity-check numbers before you talk to a lender, not as a substitute for pre-approval.

Should I always aim for a 20% down payment? It helps you avoid PMI and lowers your loan amount, but it's not mandatory — many buyers put down less and still get approved. Whether it's worth waiting to save 20% depends on your timeline, local home price trends, and how much PMI would actually cost you in the meantime.

Does the 28/36 rule apply to every type of loan? It's most commonly referenced for conventional loans, but government-backed programs (like FHA or VA loans) sometimes use different debt-to-income thresholds. Always confirm the specific guideline your loan program uses.

Why does my estimated payment differ from what a mortgage lender quoted me? Calculators use the numbers you enter; a lender's quote factors in your actual credit-based rate, specific insurance quotes, local tax assessments, and any lender fees rolled into the payment. Treat the calculator as a starting estimate, then refine it once you have real quotes.

Want to see your own numbers? Try the free Mortgage Calculator — enter your home price, down payment, rate, and term for a full monthly breakdown in seconds.