Can I Afford to Buy a House? A Step-by-Step Affordability Check
Short answer: to see whether you can afford to buy a house, check three things. The monthly payment needs to fit the 28/36 guideline (housing near 28% of gross income and all debts near 36%), you need cash for the down payment, closing costs and a reserve, and the plan needs to survive a stress test. On $8,000 of gross monthly income with $500 of debts and $60,000 down, a price near $343,000 fits at a 6.5% rate.
Key takeaways
- Lenders often use two limits: housing at about 28% of gross income and total debts at about 36%. The lower result sets your ceiling.
- Count the whole payment: principal and interest, property tax, insurance and any association fees.
- Cash needed is more than the down payment: closing costs and a reserve matter too. The example needs about $83,700.
- Stress test it. A one-point higher rate adds about $190 a month in the example, and a 20% income drop pushes housing to 35% of income.
Step 1: what monthly payment fits?
Take gross monthly income. Housing at 28% is your front-end limit. Total debt, including the new housing payment, at 36% is your back-end limit. Use the lower of the two.
| Item | Amount |
|---|---|
| Gross monthly income ($96,000 a year) | $8,000 |
| Housing limit at 28% | $2,240 |
| Total debt limit at 36% | $2,880 |
| Existing debts (car, student loan) | $500 |
| Room for housing under the debt limit | $2,380 |
| Housing ceiling (the lower) | $2,240 |
These are common lender guidelines, not rules, and some loans allow more. They are not a statement of what is comfortable. See what is a good debt-to-income ratio.
Step 2: what price does that payment buy?
Subtract an estimate of property tax, insurance and fees ($450 in the example) to get the principal and interest payment, and convert it to a loan at the current rate. At 6.5% on a 30-year loan, each $100,000 borrowed costs about $632 a month.
| Step | Amount |
|---|---|
| Housing ceiling | $2,240 |
| Less tax, insurance, fees | -$450 |
| Principal and interest | $1,790 |
| Loan this payment supports at 6.5% | $283,197 |
| Plus down payment | $60,000 |
| Price that fits | $343,197 |
Here is how the price changes with income, with no other debts and the same $60,000 down, $450 for tax and insurance and a 6.5% rate:
| Annual income | Housing at 28% | Price that fits |
|---|---|---|
| $60,000 | $1,400 | $210,300 |
| $80,000 | $1,867 | $284,132 |
| $100,000 | $2,333 | $357,964 |
| $120,000 | $2,800 | $431,795 |
Property tax and insurance vary widely by place, so replace $450 with a local figure. For the income side, see what income you need for a $500,000 house.
Step 3: how much cash do you need?
| Cash item | Example |
|---|---|
| Down payment | $60,000 |
| Closing costs, about 3% of price | $10,296 |
| Reserve: six months of housing payments | $13,440 |
| Total cash | $83,736 |
Add moving costs and early repairs. See the hidden costs of buying a house and how long it takes to save a down payment. Keep your emergency fund separate. See how to build an emergency fund.
Step 4: does it pass a stress test?
- A higher rate. If the rate were 7.5% on the same loan, the payment would rise from $1,790 to about $1,980, which is $190 more a month. This matters most with an adjustable rate.
- Lower income. If income fell 20% to $6,400, the $2,240 housing payment would be 35% of it, above the 28% guideline.
- Repairs. A common rule of thumb is to budget around 1% of the home's price each year for maintenance, which is about $3,400 a year here.
- Life changes. A baby or a job change shifts the budget. See can I afford a baby and can I afford to quit my job.
Is buying better than renting?
Affordability and value are different questions. Even if a home fits, renting can be cheaper over a short stay. See the rent vs buy comparison and whether to rent or buy. To test the decision against your goals, use the free Goal check or MoneyFrame's Decision Lab.
Sources and further reading: the Consumer Financial Protection Bureau has a buying-a-house guide, loan estimate explainers and closing cost information.
General education, not financial advice. Reviewed October 2026. The 28/36 figures are common guidelines and lenders set their own limits. Rates, taxes, insurance and costs vary by place and over time, and the example is an illustration.
Frequently asked questions
How do I know if I can afford to buy a house?
Check that the monthly payment fits about 28% of gross income for housing and 36% for all debts, that you have cash for the down payment, closing costs and a reserve, and that the plan survives a higher rate and lower income.
What is the 28/36 rule?
It is a lender guideline that housing costs stay near 28% of gross income and total debt payments near 36%. The lower of the two results sets your ceiling. Lenders vary, and some allow more.
How much cash do I need to buy a house?
More than the down payment. Add closing costs, often a few percent of the price, and a reserve of several months of housing payments. In the example, a $343,000 purchase needs about $83,700 in cash.
How much house can I afford on $96,000 a year?
With $500 of other debts, $60,000 down and a 6.5% rate, the guideline supports a price near $343,000. Your number changes with the rate, taxes, insurance and your debts.
Should I buy a house at the top of my approved amount?
A lender's approval is a ceiling, not a target. Many buyers choose a price below it to leave room for savings, repairs and changes in income. Run a stress test before you decide.