How Much House Can I Afford? Start With Your Debt-to-Income Ratio
By Arshi Khan, Founder of Just4Marketing · October 6, 2026 · 7 min read
Lenders look at your debt-to-income ratio before your credit score tells the full story. Here's how the 28/36 guideline works and how to turn it into a realistic home price.
Most people start house hunting with a price in mind. Lenders start somewhere else: with how much of your income is already spoken for. That's your debt-to-income ratio, or DTI, and it's the quickest way to turn your salary into a realistic home budget before you fall in love with a listing you can't finance.
The 28/36 guideline
A long-standing rule of thumb for conventional mortgages is that:
- your housing payment — principal, interest, property tax, and insurance — should be no more than 28% of your gross monthly income (the front-end ratio), and
- your total debt payments, housing included, should be no more than 36% (the back-end ratio).
Many lenders will approve higher ratios — 43% back-end has been a common upper limit, and some loan programs go further — but 28/36 is a comfortable target that leaves room for savings and surprises.
A worked example
Suppose your household earns $8,000 a month before tax and already pays $500 a month toward a car loan and student debt.
- 28% of $8,000 is $2,240 for housing.
- 36% of $8,000 is $2,880 for all debts. Subtract the $500 you already pay and $2,380 is left for housing.
- The lower of the two, $2,240, is your guideline housing budget.
Now turn that into a price. With 20% down, a 30-year loan at 6.5%, property tax of 1.1% a year, and $1,500 a year of home insurance, a payment of $2,240 a month supports a home of roughly $354,000: about $1,790 of principal and interest on a $283,000 loan, $325 of property tax, and $125 of insurance.
How much the interest rate moves the answer
| Mortgage rate (30-year) | Home price for a $2,240 payment |
|---|---|
| 5.5% | About $387,000 |
| 6.5% | About $354,000 |
| 7.5% | About $325,000 |
Each percentage point costs roughly 8%–9% of buying power. That's why it pays to compare lenders and why a better credit score, which usually earns a lower rate, matters so much.
Ways to raise your budget
- Pay off a small debt first. Clearing a $300-a-month car loan raises the back-end limit by $300 a month — often more than a raise would.
- Put more down. A larger down payment shrinks the loan and, below 20% down, avoids private mortgage insurance (PMI), which the example above doesn't include.
- Watch the hidden costs. HOA fees count toward your housing payment, and property taxes vary enormously between areas. Use local figures, not national averages.