● Money & small business
How much house can I afford on $110,000 a year? The 28/36 rule, worked through
"How much house can I afford?" has a lender's answer and a personal one. This is the lender-style answer, worked through for one example buyer with the 28/36 rule, so you can see which numbers actually move it. All figures are from the sample file of our home affordability calculator.
The buyer
- $110,000 gross household income ($9,166.67 a month) and $650 a month of other debt payments.
- $72,000 saved, keeping $12,000 as an emergency fund: $60,000 for the down payment and closing costs.
- A 30-year loan at 6.5%, closing costs of 3%, property tax of 1.1% a year, $1,800 a year of insurance, no HOA, and PMI of 0.6% of the loan a year while they have less than 20% equity.
The budget: the lower of two limits
The 28/36 rule gives two ceilings. Housing alone may take 28% of gross income: $2,566.67 a month. Housing plus other debts may take 36%: $3,300, minus the $650 of debts, leaves $2,650 for housing. The lower one wins, so the budget is $2,566.67 a month. For this buyer the 28% limit binds, which means their $650 of debts don't lower the answer at all. They would only start to bite above $733.33 a month.
The answer: $355,819
| At $355,819 | Amount |
|---|---|
| Down payment (13.9%) | $49,325 |
| Closing costs (3%) | $10,675 |
| Loan | $306,494 |
| Principal + interest | $1,937.25 |
| Property tax | $326.17 |
| Insurance | $150.00 |
| PMI | $153.25 |
| Monthly housing cost | $2,566.66 |
The whole $60,000 goes in at closing, and the monthly cost lands one cent under the budget. Note the PMI: $153.25 a month is the price of putting down 13.9% instead of 20%.
What moves the number
| Change (everything else the same) | Max price | Difference |
|---|---|---|
| Rate 5.5% instead of 6.5% | $382,881 | +$27,062 |
| Rate 7.5% | $331,982 | −$23,837 |
| $1,200 a month of debts instead of $650 | $297,060 | −$58,759 |
| A $300 monthly HOA | $318,045 | −$37,774 |
| Property tax 2.2% instead of 1.1% | $319,000 | −$36,819 |
| A 15-year loan | $285,400 | −$70,419 |
| $60,000 more saved ($120,000 to put in) | $427,516 | +$71,697 |
| Insisting on 20% down | $260,870 | −$94,949 |
Three things stand out:
- Monthly costs that aren't the mortgage are worth a lot of house. A $300 HOA costs this buyer about $38,000 of price, and so does moving to a county with twice the property tax. Compare listings on monthly cost, not price.
- Debts matter only past the point where the 36% limit takes over. Here that's $733 a month. At $1,200 of debts, the buyer loses almost $59,000 of price.
- Waiting for 20% down can shrink the house. With $60,000 and 3% closing costs, a 20% down payment caps the price at $260,870. That's the cash talking, not the payment: the monthly cost there is only $1,708. PMI is a cost, but it's what lets this buyer use their full monthly budget. Whether that's worth it is a personal call.
The personal answer
28/36 is the ceiling a lender will usually accept, not a target. It's based on gross income, before taxes and retirement contributions, and it ignores childcare, commuting and saving. Run the lender's number first, then check the payment against your actual take-home budget. The free home affordability calculator does the lender's number, with your ratios, and the maximum price at five rates. Every figure above is from the verified model in our spreadsheet, where the maximum price was checked against a closed-form solution. Not financial advice; your lender's numbers decide.