Here's the honest framework: the 28/36 rule, the real payment math at today's rates, and what income you actually need at common price points. Rates used below: ~7.3% for a 30-year fixed — roughly where Freddie Mac's weekly survey sat in early October 2026 (7.28% as of Oct 1, up from 6.34% a year earlier).
Rule #1: The 28/36 Rule
This is the classic underwriting guideline, and it's still the best starting point:
- 28%: Your total monthly housing cost (mortgage + property tax + homeowners insurance + HOA + PMI) should not exceed 28% of your gross monthly income.
- 36%: Your total monthly debt payments (housing + car loans + student loans + credit card minimums + everything else) should not exceed 36% of gross income.
Lenders may stretch these to 31/43 or beyond. That's their risk tolerance, not your budget. Stick with 28/36 and you'll sleep at night.
Rule #2: Know the Real Payment, Not Just P&I
First-time buyers fixate on principal and interest. The real monthly bill includes four more items — PITI plus extras:
| Component | Example on a $400K home |
|---|---|
| Principal & interest (7.3%, 20% down) | ~$2,190 |
| Property tax (~1.1% of value/yr) | ~$367 |
| Homeowners insurance | ~$150–250 |
| PMI (if <20% down) | $0–200 |
| HOA (if applicable) | $0–400 |
| True monthly cost | ~$2,700–3,400 |
Property tax and insurance alone can add $500–800/month to what the mortgage calculator showed you. Always budget the full stack.
The Income You Need at Each Price Point
Assumes 20% down, 7.3% 30-year fixed, ~$500/month for taxes + insurance, no HOA, and the 28% rule:
| Home price | Down payment | Loan | P&I payment | Total housing/mo | Income needed |
|---|---|---|---|---|---|
| $300,000 | $60,000 | $240,000 | ~$1,646 | ~$2,150 | ~$92,000 |
| $400,000 | $80,000 | $320,000 | ~$2,194 | ~$2,700 | ~$116,000 |
| $500,000 | $100,000 | $400,000 | ~$2,743 | ~$3,250 | ~$139,000 |
| $600,000 | $120,000 | $480,000 | ~$3,291 | ~$3,800 | ~$163,000 |
(Quick check: the WSJ reported a $500,000 loan at 7.28% costs $3,421/month in P&I alone — consistent with the table above.)
Notice the pattern: every $100,000 of home price at 7.3% costs roughly $550/month more in P&I and demands roughly $23,000 more in annual income. At 3% rates, that same $100,000 cost about $420/month. High rates punish stretching.
The 3% Down Trap
Putting 3–5% down gets you in the door, but check the cost: on a $400,000 home with 5% down, your loan is $380,000, P&I jumps to ~$2,605, and PMI adds ~$150–250/month until you hit 20% equity. That's roughly $600/month more than the 20%-down buyer pays — over $7,000 a year — for the same house.
Low down payments aren't wrong (especially for first homes), but price them honestly: you're renting money at 7%+ and paying insurance on the privilege.
Three Questions Before You Offer
- Can I afford the payment at 28% of income including taxes, insurance, and HOA? If you're using 35%+ of gross pay, one surprise (roof, HVAC, job wobble) breaks the budget.
- Do I have 6 months of the full payment saved after closing? A house with no reserves is a crisis waiting for a trigger.
- Would I still buy it if rates never drop? "Refinance later" is a hope, not a plan. Underwrite the deal at today's rate.
FAQ
Q: What is the 28/36 rule?
A: A guideline that housing costs shouldn't exceed 28% of gross monthly income, and total debt payments shouldn't exceed 36%. Lenders may allow more, but 28/36 keeps your budget resilient.
Q: How much house can I afford on $100,000 a year?
A: At 28% of gross income, about $2,333/month for total housing. At 7.3% rates with 20% down and typical taxes/insurance, that supports roughly a $330,000–350,000 home — far less than the same income bought at 3% rates.
Q: How much does a $400,000 mortgage cost per month?
A: With 20% down ($320,000 loan) at 7.3% for 30 years, principal and interest run about $2,194/month. Add taxes and insurance (~$500) for a true cost near $2,700/month.
Q: Should I wait for rates to drop before buying?
A: Only if the math works at today's rate. Buying a home you can afford now and refinancing later if rates fall is reasonable; buying a home you can't afford now on the hope rates fall is gambling.
Q: Is 20% down still necessary?
A: No — many buyers succeed with 3–10% down. But less than 20% means PMI ($150–250/month typically) and a bigger loan at 7%+ rates, so budget the true cost and have a plan to reach 20% equity.
This article is for general information only and is not financial advice. Mortgage figures are estimates; actual payments vary by lender, credit, taxes, and insurance.
Tool tie-in: A "How Much House Can I Afford?" calculator (income + debts + down payment + rate → max price and true monthly cost) would fit this article perfectly.