How Much House Can You Afford? Three Numbers the Bank Won't Volunteer
The amount a bank approves and the amount you can truly sustain are usually far apart. Three ratios tell you the safe number.
When a bank approves a mortgage it asks “can they repay?”, using income multiples and debt ratios. That's a ceiling, not the figure you should use. A sustainable home budget is something you calculate yourself.
Number one: the 28/36 rule
- Housing costs under 28% of monthly income: mortgage payment, HOA fees, property tax, insurance.
- Total debt under 36% of monthly income: add car loans, credit cards, consumer loans, and support obligations.
Example: with $30,000 monthly household income, housing is capped at $8,400 and total debt at $10,800. If you already pay $3,000 for a car, keep the mortgage under $7,800.
Number two: down payment plus hidden costs
A down payment is typically 20–30%, but that's far from your total cash need. Also budget for transfer tax (about 1–3%), a maintenance reserve, agent fees, renovation, appliances, and at least six months of payments in reserve.
Number three: the stress test
Before signing, recalculate the payment with rates 1–2 percentage points higher and see if you can still cope. If your budget only works at today's rate, it has no resistance to rate moves.
Compare payments with the Mortgage Calculator across rates and terms, then model prepayment with the Loan Calculator.
Don't forget holding costs
- HOA or management fees: charged by area and a real long-term expense.
- Maintenance and renovation: homes need continuous investment as they age.
- Commuting: a cheaper suburb carries time and transport costs worth pricing in.
- Opportunity cost: what the down payment might have earned if invested.
The figure you reach after all of this is what you can genuinely afford. It usually sits 20–30% below what the bank would lend — and it's the budget you can live with comfortably.