My buddy texted me last week: "I make $75k, my agent says I can afford a $400k house. That feels high."
It is high. Your agent doesn't pay your mortgage — you do. Here's the actual math.
Banks use two ratios to decide what they'll lend you. You should use them to decide what you'll actually borrow.
28% rule: Your total housing payment (mortgage + insurance + taxes) shouldn't exceed 28% of gross monthly income.
On $75,000/year = $6,250/month gross. 28% = $1,750/month for housing.
36% rule: Your total debt payments (housing + car + student loans + credit cards) shouldn't exceed 36% of gross income.
36% = $2,250/month for ALL debt. If you have a $400 car payment and $300 student loans, your housing budget drops to $1,550.
Assuming 20% down, 6.5% rate, $300/month property tax, $100/month insurance:
| Home Price | Down Payment | Monthly P&I | Total Payment | Fits 28%? |
|---|---|---|---|---|
| $250,000 | $50,000 | $1,264 | $1,664 | ✅ Yes |
| $300,000 | $60,000 | $1,517 | $1,917 | ⚠️ Tight |
| $350,000 | $70,000 | $1,770 | $2,170 | ❌ No |
| $400,000 | $80,000 | $2,023 | $2,423 | ❌ No |
So your agent's $400k recommendation? That puts you at 39% of gross income for housing alone. Before groceries, gas, or saving for retirement. Not smart.
| City | Median Home Price | Can You Afford It? |
|---|---|---|
| Detroit, MI | $180,000 | ✅ Easily |
| Pittsburgh, PA | $225,000 | ✅ Yes |
| Atlanta, GA | $385,000 | ⚠️ Stretch |
| Denver, CO | $580,000 | ❌ No |
| Seattle, WA | $750,000 | ❌ No |
| San Francisco, CA | $1,200,000 | ❌ Hell no |
Budget 1-3% of home value annually for maintenance. On a $300k house, that's $3,000-9,000/year or $250-750/month.
HVAC dies? $5,000. Roof needs replacing? $12,000. These aren't emergencies — they're inevitabilities. If your budget is stretched to the limit on the mortgage, one repair becomes a crisis.
Plug in your salary, debts, and target home price to see what you can actually afford.
Try the Mortgage Calculator →Banks use gross. You should use net. Your $75k gross is probably $55-58k after taxes. Using gross ratios makes houses look more affordable than they are.
You'll pay PMI (private mortgage insurance), typically 0.3-1.5% of loan amount annually. On a $300k house with 10% down, that's roughly $150-400/month extra. Plus your monthly payment is higher because the loan is bigger.