Buying a home is the biggest financial decision most people will ever make — and it's one where getting the number wrong in either direction carries serious consequences. Buy too little and you may outgrow the home quickly or end up in a neighborhood that doesn't suit your family. Buy too much and you become "house poor" — technically a homeowner, but with no financial flexibility, no savings, and a mortgage payment that owns you instead of the other way around.
The right number isn't just about what the bank will approve. Banks will often approve you for far more than you should actually spend. This guide gives you the real framework — based on your gross income, your take-home pay, your savings, and your total financial picture — so you can walk into a home purchase with confidence instead of anxiety.
The Three Rules of Home Affordability
Financial planners have developed several rules of thumb over the decades. None of them are perfect — they're starting points, not gospel. But together, they triangulate a sensible range for what you should spend.
Gross Income
Gross Income
Use all three together. If a home price passes all three tests, you're likely in good shape. If it fails even one — especially the 28% payment rule — that's a warning sign worth taking seriously. The 2.5–3× multiplier is your quick filter; the 28% rule is your reality check once you know the actual mortgage payment.
What These Rules Look Like at Different Salaries
Here's how the math plays out across a range of household incomes. These assume a 20% down payment and a 6.5% mortgage rate — adjust using the calculator below for your specific situation.
| Household Income | 2.5× Price Range | 3× Price Range | Max Monthly Payment (28%) | Comfort Level |
|---|---|---|---|---|
| $60,000 | $150,000 | $180,000 | $1,400/mo | Manageable |
| $80,000 | $200,000 | $240,000 | $1,867/mo | Manageable |
| $100,000 | $250,000 | $300,000 | $2,333/mo | Comfortable |
| $120,000 | $300,000 | $360,000 | $2,800/mo | Comfortable |
| $150,000 | $375,000 | $450,000 | $3,500/mo | Watch Expenses |
| $200,000 | $500,000 | $600,000 | $4,667/mo | Watch Expenses |
| $250,000 | $625,000 | $750,000 | $5,833/mo | High Commitment |
"The bank pre-approved us for $450,000. We bought a $310,000 house. That gap — $140,000 less than we could have 'afforded' — is what let us max out retirement contributions, pay for our kids' activities, take vacations, and sleep at night. The bank tells you the ceiling. You decide what the right number is."
Your Home Affordability Calculator
Enter your actual numbers below for a personalized estimate based on your income, savings, existing debts, and down payment.
How Much Savings Do You Actually Need?
Your down payment is just the beginning. Many first-time buyers drain their savings for the down payment and then get blindsided by the additional costs of closing and moving in. Here's the full picture of what you need in savings before making an offer:
Total savings needed = Down Payment + Closing Costs (2–5%) + Moving Costs + Immediate Repairs + 3–6 Month Emergency Fund. On a $350,000 home with 20% down, that means you need roughly $70,000 down + $10,500 in closing costs + $5,000 in moving/immediate costs + 3–6 months of living expenses in reserve. Plan for a minimum of $90,000–$100,000 in liquid savings before pulling the trigger on that price point.
Down Payment: What Are Your Real Options?
Private Mortgage Insurance (PMI) is a monthly fee you pay when your down payment is less than 20%. It protects the lender — not you — if you default. PMI typically costs 0.5–1.5% of the loan balance per year, paid monthly. On a $300,000 loan, that's $125–$375 per month going straight to the lender, adding nothing to your equity. PMI is canceled automatically when you reach 20% equity, but it can significantly increase your monthly payment in the years before that.
Price vs. Payment: The Chart That Changes Everything
Most people focus on home price. Your lender focuses on your payment. This chart shows the monthly principal & interest payment at different home prices and interest rates — so you can see how rate changes dramatically affect what you can afford.
The Hidden Costs of Homeownership
Your mortgage payment is the start, not the sum total, of what you'll spend on your home. New homeowners consistently underestimate the ongoing costs — and it's these costs that turn a manageable mortgage into genuine financial strain. Budget for all of these before deciding what you can afford:
How Your Savings Picture Changes Your Budget
Two buyers with identical incomes can have very different home budgets based on how much they've saved. Here's why savings matter beyond just the down payment:
More savings = lower loan amount = lower payment = more room in the budget. Every $10,000 extra you put down reduces your monthly payment by roughly $55–$65 at current rates and eliminates PMI faster. But beyond the down payment, having strong savings means you can handle the inevitable surprises — the roof that needs replacing, the furnace that dies in February, the unexpected job disruption — without financial crisis.
The buyers who end up house poor are almost always the ones who stretched their down payment to get into the home they wanted, left themselves no emergency reserve, and then got hit by the first major repair. Don't be that buyer. The rule of thumb: after paying your down payment and closing costs, you should still have at least 3–6 months of living expenses in savings. If you can't do that at a given purchase price, you can't truly afford that home yet — regardless of what the bank says.
"Before you ask 'how much house can I afford,' ask 'how much house do I actually need?' Those are completely different questions. The family down the street in the 4,000 square foot house isn't happier than the family in the 2,200 square foot house. But one of them is definitely more stressed about money. Buy the house that fits your life — not the one that maxes out your budget to impress people you barely know."