Buying a home is exciting, but the financial questions can feel overwhelming. Instead of starting with a listing price, a better approach is to start with your life: your income, your monthly bills and how much financial breathing room you want each month.
This guide walks through the key pieces lenders and others focus on, so you can build a realistic price range before you start scrolling through homes.
Start with your monthly budget
Before you think about loan amounts, get clear on what you can spend every month on housing.
A simple way to do that is to build or update a household budget that includes:
- Combined take-home pay from all buyers
- Recurring bills like car payments, student loans, credit cards and childcare
- Everyday spending like groceries, gas, dining out and entertainment
- Savings goals like emergency funds, retirement, vacations and education
It’s a good idea to decide how much you want to spend on a total monthly home payment first, then work backward to a home price from there.
The 28/36 guideline (and why it matters)
A common starting point for home affordability is the 28/36 guideline. It’s not a rule, but it’s widely used as a benchmark.
- Around 28% of your gross monthly income or less for total housing costs (principal, interest, property taxes, homeowners insurance and any HOA fees.) This is often referred to as your front-end debt-to-income ratio.
- Around 36% of your gross monthly income or less for total debt, including your housing costs plus other recurring debts like car loans, student loans and credit cards. This is often referred to as your back-end debt-to-income ratio.
What lenders look at: Debt-to-income ratio
Your debt-to-income ratio, or DTI, compares how much you owe each month to how much you earn before taxes.
To calculate a back-end DTI:
- Add up your monthly contractual debt obligations, including the projected mortgage payment (principal, interest, taxes, insurance, HOA if applicable), plus car loans, student loans, credit cards, alimony and child support obligations and other recurring debts reported on your credit profile.
- Divide that total by your gross monthly income.
- Multiply by 100 to get a percentage.
Many lenders prefer to see a back-end DTI around 45% or less, although some loan programs may allow higher ratios, depending on the full profile of the borrower.
Don’t forget taxes, insurance and fees
When you hear “mortgage payment,” it usually includes more than just paying back the loan itself. Lenders and consumer resources often use the shorthand “PITI.”
Principal – What you borrowed
Interest – What you pay the lender for the loan
Taxes – Property taxes
Insurance – Homeowners insurance and sometimes mortgage insurance
If you buy in a community with a homeowners association, HOA dues can also be part of your monthly housing cost. Property taxes, insurance premiums and HOA fees vary by location and property type, so it’s important to use local estimates when you run your numbers.
How your down payment affects affordability
Your down payment helps determine both your monthly payment and the price range you can consider.
Typical minimum down payment ranges (which can change over time and by program) include:
- Some conventional loans, often as low as about 3-5% for qualified borrowers
- Some government-backed loans often require a minimum around 3.5%
- Other loan programs may offer $0 down payment at closing
Higher down payments reduce the amount you need to borrow, which can lower your monthly payment and the total interest you pay over time. Smaller down payments may let you buy sooner but can lead to a higher loan amount, higher payment and, depending on the loan type, mortgage insurance costs.
To learn more about down payment programs that may be available to you, please use our Down Payment Resource.
Closing costs are another piece of the cash-to-close equation. Typical closing costs often range from about 2-5% of the purchase price, not including your down payment. Those costs can include standard lender fees, appraisal, title services and other third-party charges.
Stress-testing your number
Numbers on a screen are one thing. Living with the payment is another.
Some financial experts suggest doing a test drive by setting aside the difference between your current housing costs and your projected payment in savings for several months. If you can make that transfer every month and still cover your expenses and savings goals, you have evidence that the payment is workable for your lifestyle.
It’s also important to think about non-mortgage costs of homeowners, such as utilities, maintenance and repairs. Also, be sure to budget for ongoing maintenance and setting aside savings for unexpected expenses.
Other factors that influence how much you can afford
Beyond the basic math, several variables influence your price range:
Interest rate – Higher rates increase your monthly payment for the same loan amount, which can reduce the price you can comfortably afford.
Credit profile – Your credit history and scores can affect the interest rate you qualify for and which loan programs are available.
Loan term – A shorter term, like 15 years, usually means higher monthly payments but less total interest. A longer term, like 30 years, usually lowers the monthly payment but increases total interest over time.
Local market – Property taxes, insurance costs and typical home prices vary widely by location, which can affect what feels affordable in your area.
Because these pieces move together, small changes in any one of them can shift your comfortable price range up or down.
How to turn guidelines into a personal plan
Here’s one way a buyer might approach affordability:
- Decide on a monthly housing budget that leaves room for savings and other goals.
- Check that the resulting housing and total debt payments are within a DTI range you feel comfortable with, considering the 28/36 guidance as a reference point, not a rule.
- Estimate your available down payment after accounting for emergency savings and closing costs in the 2-5% range.
- Use an online calculator to translate that monthly payment and down payment into a price range.
- Talk with a loan officer to review your numbers, discuss loan options and understand how their specific underwriting standards would apply to your situation.
Each step helps move you from a rough idea of wanting a house to a practical range you can shop with confidence.
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"Every buyer's situation is different. Personalized advice from a lender helps turn general estimates into a strategy that fits your goals." – Blake Gray, Manager, Mortgage Business Development |
When to talk with a lender
Online tools can help you explore “what if” scenarios but they aren’t a substitute for personalized advice.
Speaking with a licensed loan officer can help you:
- Understand which loan options may fit your situation.
- See how your income, debts and credit profile align with their current guidelines.
- Get pre-approved, so you know what price range their underwriting may support if you decide to apply.
A conversation before you start touring homes can save time, help you set expectations and give you a clearer sense of what “affordable” looks like for you.
Buying a home is one of the biggest financial decisions you will make, and the “right” number is less about what a calculator says and more about what lets you sleep at night. By anchoring your search to a realistic monthly budget, understanding how debt-to-income ratios and down payments shape your options and stress-testing the payment against your real life, you can move forward with a clear, confident price range instead of guessing. When you’re ready, partnering with a knowledgeable loan officer to review your numbers, explore loan options and talk through next steps can turn those calculations into a practical plan for finding a home that fits both your lifestyle and your long-term financial goals.
Blake Gray is Manager of Mortgage Business Development for Atlantic Union Bank.
His focus is on developing and executing marketing strategies that support loan officers, helping them build relationships with clients. He develops and executes marketing strategies that help prospective homebuyers connect with trusted mortgage professionals and navigate their home financing journey with confidence. Outside of work, Blake enjoys soccer, fishing and spending time with his family.
This is not a commitment to lend or extend credit. All loans, credit and collateral are subject to approvals. Terms, rates, data, programs, information and conditions are subject to change without notice. Specific program restrictions may apply. Not all loans or products are available in all states.