Buying a home is the largest financial decision most Americans will ever make. With mortgage rates between 6.5–7.2% in 2026, knowing exactly how much house you can afford has never been more important. This guide walks you through the exact framework that lenders use — and that you should use — to calculate your home-buying budget.
The 28/36 Rule: The Foundation of Home Affordability
Most mortgage lenders use the 28/36 rule as their primary affordability benchmark. Here's what it means:
- 28% rule: Your total monthly housing costs (mortgage payment, property tax, home insurance, HOA fees) should not exceed 28% of your gross monthly income
- 36% rule: Your total monthly debt obligations (housing + car loans + student loans + credit cards) should not exceed 36% of your gross monthly income
Step-by-Step: Calculate Your Home Buying Budget
Step 1 — Find Your Maximum Monthly Payment
Multiply your gross monthly income by 0.28:
| Annual Income | Monthly Income | Max Housing Payment (28%) | Max Total Debt (36%) |
|---|---|---|---|
| $50,000 | $4,167 | $1,167 | $1,500 |
| $70,000 | $5,833 | $1,633 | $2,100 |
| $90,000 | $7,500 | $2,100 | $2,700 |
| $120,000 | $10,000 | $2,800 | $3,600 |
| $150,000 | $12,500 | $3,500 | $4,500 |
Step 2 — Subtract Tax & Insurance
Your monthly payment includes more than just principal and interest (P&I). Subtract these from your maximum to find your actual P&I budget:
- Property tax: Average ~1% of home value annually ($250/month on a $300K home)
- Home insurance: Average ~$100–150/month
- PMI (if down payment < 20%): ~0.5–1% of loan amount annually
Step 3 — Calculate Maximum Loan Amount
With your P&I budget determined, you can back-calculate the maximum loan amount. At current 2026 rates:
| Monthly P&I Budget | Max Loan at 6.8% (30yr) | Max Loan at 6.8% (15yr) |
|---|---|---|
| $1,000 | $153,000 | $113,000 |
| $1,500 | $229,000 | $169,000 |
| $2,000 | $306,000 | $225,000 |
| $2,500 | $382,000 | $282,000 |
| $3,000 | $459,000 | $338,000 |
Down Payment: How Much Do You Need?
Your down payment directly affects your loan size, monthly payment, and whether you'll pay PMI. Here are the main options in 2026:
- 3–5%: FHA loans and some conventional loans accept this, but you'll pay PMI and higher rates
- 10%: Reduces PMI and loan size, but PMI still required for conventional loans
- 20%: Eliminates PMI entirely — this is the sweet spot most financial advisors recommend
- 25%+: May qualify you for better rates on some loan products
What Credit Score Do You Need in 2026?
Your credit score significantly impacts the interest rate you'll receive:
| Credit Score | Loan Type Available | Typical 30-yr Rate |
|---|---|---|
| 760+ | Conventional (best rates) | ~6.5% |
| 700–759 | Conventional | ~6.8–7.0% |
| 680–699 | Conventional / FHA | ~7.0–7.3% |
| 620–679 | FHA | ~7.3–7.8% |
| Below 620 | FHA (limited options) | 8%+ |
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Calculate My Mortgage →Key Takeaways
- Use the 28/36 rule as your starting point
- Budget for property tax, insurance, and PMI on top of P&I
- Aim for 20% down to avoid PMI if possible
- Maintain a 3–6 month emergency fund after purchase
- Get pre-approved by at least 3 lenders to compare rates
- Your credit score has a huge impact on your rate — improve it before applying
This article is for informational purposes only and does not constitute financial or mortgage advice. Rates, limits, and guidelines change frequently. Always consult a licensed mortgage professional and financial advisor before making home-buying decisions.