"How much house can I afford" doesn't have one universal answer, but for a conventional mortgage, most lenders lean on two well-known guideline ratios to underwrite a loan: the 28% rule and the 36% rule. Understanding how these two numbers interact tells you a lot about what a lender is likely to approve, even before you talk to one.
The two rules
The 28% rule says your housing payment, meaning principal, interest, property tax, insurance and HOA combined, shouldn't exceed about 28% of your gross monthly income. The 36% rule says your total debt payments, housing plus everything else like car loans, student loans and credit cards, shouldn't exceed about 36% of your gross monthly income. A lender computes both ceilings and uses whichever one is lower, called the "binding" rule, since that's the one that actually limits what you can borrow.
A real example
Using the exact inputs from the how much house can I afford calculator: $90,000 annual income, $400/month in other debts (a car payment, say), a $30,000 down payment, a 6.5% interest rate, a 30-year term, and $300/month estimated for property tax and insurance combined.
Monthly income on $90,000 a year is $7,500. The 28% rule caps housing at $2,100 a month. The 36% rule, after subtracting the $400 in other debts, leaves $2,300 a month for housing. Since $2,100 is lower, that's the binding limit, the 28% housing rule in this case.
After subtracting the $300/month tax and insurance estimate from that $2,100 ceiling, $1,800 is left over for principal and interest. Working the standard loan payment formula backward, $1,800 a month at 6.5% over 30 years supports a loan of about $284,779. Add the $30,000 down payment on top, and the estimated maximum home price comes out to about $314,779.
Why your estimated tax and insurance number matters so much
That $300/month tax and insurance estimate comes straight out of your housing budget before principal and interest get a turn. A higher estimate directly lowers how much loan your income can support, since less of that $2,100 ceiling is left for the actual mortgage payment. Property tax and insurance costs vary a lot by location, so it's worth using a real estimate for the area you're looking at rather than a generic guess. A difference of even $100 or $200 a month in this field can move your estimated max price by tens of thousands of dollars.
Is 28%/36% a hard rule?
No, and this is worth being clear about. These are common underwriting guidelines, especially for conventional loans, but actual approval depends on the specific lender, the loan type (FHA, VA, jumbo and others all have their own rules), your credit profile, your cash reserves, and more. Some loan programs allow a higher debt-to-income ratio than 36%. This calculator is built to show you the math behind the common guideline, not to predict exactly what any individual lender will approve for your situation.
What isn't included
PMI (private mortgage insurance, common when putting down less than 20%) and HOA fees aren't modeled as separate line items. If you expect either one, the simplest way to account for it with this calculator is to add a rough monthly estimate into the tax/insurance field, so it's folded into the same housing-payment ceiling that tax and insurance use.
How other debts change the picture
Notice how the $400/month in other debts in the example above didn't actually end up mattering, because the 28% rule was already the binding limit before the 36% rule came into play. But if those other debts were higher, say $900/month instead of $400, the 36% ceiling would drop to $1,800/month, which would then become the binding rule instead of 28%, lowering the estimated max price. Paying down other debt before house hunting can directly increase how much home a lender is willing to approve, which is part of why this calculator includes that field at all.
What changes the target decision
Two inputs move the target number the most: your estimated tax and insurance (which eats into the 28% ceiling before principal and interest get a turn) and your other monthly debts (which can make the 36% rule the binding one instead of 28%, as shown above). Of the two, your other debts are usually the one you have the most direct control over before you start house hunting. Paying down a car loan or a credit card balance ahead of time doesn't just reduce what you owe elsewhere, it directly raises the maximum home price a lender's math will support, sometimes significantly.
A note on interest rate sensitivity
Because the calculator solves backward from a fixed monthly payment to a loan amount, the interest rate you enter has a real effect on the final number, even with everything else held constant. A lower rate means more of that $1,800 monthly budget goes toward principal rather than interest, supporting a larger loan for the same payment. Since mortgage rates move with the broader market and aren't something you control, it's worth re-running this calculator with a slightly higher and slightly lower rate than whatever you're currently seeing quoted, just to see how sensitive your estimated max price actually is to rate changes before you commit to a number in your head.
The takeaway
A lender's math isn't a mystery, it's two ratios applied to your income and existing debts, with the lower number winning. Run your own income, debts, down payment, rate and tax/insurance estimate through the how much house can I afford calculator to see your own estimated maximum, and which rule is actually limiting you.
This is an educational estimate, not financial advice. See the disclaimer for more.
More money math in my book. Check out Money Math for Your 20s.