Every affordability calculator on the internet does the same thing: they take your gross income, multiply by 28% (or 36%, or some other lender-friendly ratio), and hand you a monthly payment. Then they invert that payment into a purchase price at today's mortgage rate and print a big green number. That number is the maximum a lender will let you borrow. It is almost never the number you can actually afford.
The honest way to answer "how much house can I afford" is to walk down from take-home pay, subtract everything else you're going to spend money on, and see what monthly housing cost is left. Then price it into a purchase ceiling. Here's the arithmetic, with worked examples.
Why the 28% rule is a lender's rule, not yours
The 28% front-end DTI ratio (housing payment / gross monthly income) and 36% back-end DTI ratio (total debt payment / gross monthly income) come from Fannie Mae and Freddie Mac underwriting standards. They exist to tell the lender: at this DTI, you probably won't default. They do not exist to tell you: at this DTI, your life will still feel like a life.
Three things are broken about applying the 28% rule to yourself.
- It's on gross income. Your gross income does not pay for anything. Your take-home does. The gap between gross and take-home is usually 25–35% (federal, state, FICA, health premiums, 401(k) contribution). A payment that's "28% of gross" is easily "40%+ of take-home."
- It ignores everything but housing debt. No childcare, no retirement contribution beyond the minimum match, no groceries, no student loans that were paused during COVID and are now due again. The 28% rule assumes the rest of your budget scales down to fit — but for most households, groceries and childcare don't scale.
- It uses today's mortgage payment. A 30-year mortgage is 360 months. Your job situation, health, family size, and interest rate environment are not the same for all 360 of them. The lender doesn't care because they can foreclose. You should care because you can't.
The rule is not wrong for the lender's use case. It's wrong for yours.
The honest walk-down formula
Here's the walk-down. Start at monthly take-home. Subtract every other line in your budget. What's left is your maximum defensible housing spend — call it MDH. Then convert MDH to a purchase price at today's mortgage rate.
1. Monthly take-home pay (after federal, state, FICA, health, 401k up to match)
– Retirement contribution beyond match (target 15% of gross, so a chunk more)
– Child care / school
– Groceries + household goods
– Utilities (electric, gas, water, internet, phone)
– Transportation (car payment, gas, insurance, maintenance, or transit)
– Student loans, credit cards, other minimums
– Health/life insurance premiums not in payroll
– Emergency fund contribution (until 6 months of expenses saved)
– Discretionary / travel / gifts / dining
– 5% slack (things you forgot; there are always things you forgot)
= Maximum defensible housing spend (MDH)
2. MDH × 0.72 = P&I budget
(72% is the honest ratio for a US average state — the other 28% goes to
property tax, insurance, HOA, and maintenance reserve. See PITI+ piece.)
3. Purchase price ceiling = P&I budget ÷ (mortgage payment factor at your rate)
× (1 + down-payment fraction)
– closing costs you plan to pay
That's it. It's not one formula, it's four subtractions and two multiplications. The reason the lender doesn't hand it to you is that most of the inputs are things about your life the lender doesn't want to know about.
Payment factor cheat sheet
For step 3, you need the monthly payment per $1,000 borrowed at your rate. Freddie Mac PMMS shows the 30-year fixed averaging ~6.75% in 2026 year-to-date. Here's the payment factor for a 30-year fixed at common current rates:
| Rate | Monthly P&I per $1,000 borrowed |
|---|---|
| 5.5% | $5.68 |
| 6.0% | $6.00 |
| 6.5% | $6.32 |
| 6.75% | $6.49 |
| 7.0% | $6.65 |
| 7.5% | $6.99 |
| 8.0% | $7.34 |
So if your P&I budget is $2,000/month and the current rate is 6.75%, you can borrow $2,000 / $6.49 × $1,000 = $308,000. Add 20% down and you're buying a $385,000 house. Add 10% down and it's $342,000. Same P&I budget, radically different purchase prices depending on down payment.
Worked example 1: $100k household income
Married household, no kids, one earner at $100k gross, filing jointly, in a state with a 5% income tax and a 1% property tax rate. Renting an apartment at $2,100/month. Health insurance through employer with a family PPO plan.
- Gross income: $8,333/month
- Take-home after federal (
$8,700/year), state ($4,000/year), FICA ($7,650/year), health premium ($350/month), 401(k) at 6% match ($500/month): roughly $5,200/month - Subtractions:
- Additional retirement to hit 15% total: $750/month
- Groceries + household goods: $700/month
- Utilities: $220/month
- Transportation (one modest car, gas, insurance, maintenance): $600/month
- Student loans: $250/month
- Emergency fund (building to 6 months, ~$30k target): $500/month for the next 5 years
- Discretionary/travel/gifts/dining: $600/month
- 5% slack on the rest: $180/month
- Total subtractions: $3,800/month
- MDH (maximum defensible housing spend): $1,400/month
Now convert. At 72% going to P&I, that's a $1,010/month P&I budget. At 6.75%, that supports a $155,600 loan. With 20% down, that's a $195,000 house. With 5% down (plus PMI eating into MDH — call it $90/month at 780 credit), P&I budget drops to $920 and supports a $142,000 loan → $149,000 house.
For comparison, the lender's 28%-of-gross rule would say: $2,330/month PITI, ~$1,700 P&I after tax/insurance, ~$262,000 loan, ~$328,000 house at 20% down. The lender would approve you for a house ~$130,000 more expensive than the number that leaves your budget intact.
The gap is not the lender being wrong. The gap is what happens when you slot a mortgage into the space where "emergency fund" and "retirement past the match" and "500/month slack" used to live.
Worked example 2: $150k household income
Married, one kid in daycare, one earner at $150k gross (or two earners summing to $150k), same tax assumptions, same 1% property tax state.
- Take-home: roughly $7,600/month after federal, state, FICA, employer health premium, 401(k) at 6%.
- Subtractions:
- Additional retirement to hit 15%: $1,050/month
- Daycare: $1,600/month (US average for infant/toddler care)
- Groceries + household goods: $900/month
- Utilities: $260/month
- Transportation: $700/month
- Student loans: $300/month
- Emergency fund contribution: $500/month
- Discretionary/travel/gifts/dining: $800/month
- 5% slack: $310/month
- Total subtractions: $6,420/month
- MDH: $1,180/month
Wait — that's less than the $100k example. Because daycare is a killer. The lender's 28% rule at $150k would say: $3,500/month PITI, ~$2,550 P&I, ~$393,000 loan, ~$491,000 house at 20% down. The honest walk-down says $1,180 total housing → ~$850 P&I → ~$131,000 loan → ~$164,000 house.
The gap between what the lender approves and what the budget survives is three-fold at $150k with a kid in daycare.
Two footnotes on this one. First: daycare ends. Once the kid is in public kindergarten, that $1,600/month opens up, and the math changes drastically. Some households buy at a lower price now, and refinance / trade up when daycare drops off. Others rent through the daycare years and buy at 5. Second: the walk-down assumes you're maintaining the retirement contribution. If you're willing to cut that to 6%, MDH rises materially — but you're borrowing from your future self at 5%+ real return, which is not free money.
Worked example 3: $250k household income
Two earners, one kid in daycare, both maxing 401(k)s, target no debt outside the mortgage.
- Take-home: roughly $13,000/month after federal, state, FICA, employer health, 401(k) maxed on both sides ($23,000/year each × 2 = $46,000 pretax reduction).
- Subtractions:
- Post-401k saving (backdoor Roth, brokerage, kid's 529): $2,000/month target
- Daycare: $1,800/month (upmarket daycare)
- Groceries + household goods: $1,300/month
- Utilities: $350/month
- Transportation (two cars, one financed): $1,400/month
- Discretionary/travel/gifts/dining: $2,000/month
- Emergency fund: $600/month
- 5% slack: $475/month
- Total subtractions: $9,925/month
- MDH: $3,075/month
That's a $2,210/month P&I budget at 72% → $340,000 loan at 6.75% → $425,000 house at 20% down. The lender's 28% rule at $250k would approve up to ~$820,000. Roughly a two-to-one gap.
At $250k the walk-down doesn't feel painful the way it does at $150k, but the gap between lender-approved and walk-down-affordable is largest here, because the 401(k) maxing and the discretionary line both scale with income.
The "MDH ratio" — a sanity check across incomes
Notice the pattern. In these three examples, MDH lands at:
- $100k → 17% of gross ($1,400 of $8,333)
- $150k → 9% of gross ($1,180 of $12,500)
- $250k → 15% of gross ($3,075 of $20,833)
None of them hit 28%. The $150k example doesn't hit 10%. The 28% rule is not a rule of thumb for the median case — it is the upper bound the lender uses in an underwriting model, and it assumes zero childcare, minimal retirement saving, and no discretionary cushion.
The right ratio for you depends entirely on what you subtract in step 1. A DINK couple with no student loans and no daycare will land closer to 20–25% of gross going to housing. A young family with daycare and one earner will land at 10–15%. The number is your number, and copying a rule of thumb across every income level and every family situation is exactly the kind of imprecision that gets buyers into trouble.
What to do with the number
Three uses:
- Compare it against your current rent. If MDH is less than what you already pay in rent, buying at any price above the equivalent doesn't fit. If MDH is meaningfully more than your rent, you have room. Our rent-vs-buy calculator puts both numbers on the same page.
- Feed it into the price-ceiling formula. MDH × 0.72 ÷ payment factor × (1 + down%) − closing costs = the price above which you're borrowing from other parts of your life. That's your ceiling, not a target. Buying below it gives you slack for the year you replace the roof.
- Watch what it does when rates move. MDH is a monthly-cash number; the price it supports moves inversely with mortgage rates. At 6.75% our $150k example supported a $164k house. At 8% it would support ~$146k. At 5.5% it would support ~$188k. Same paycheck, meaningfully different house.
The lender's 28% rule tells you what will get approved. The walk-down tells you what will survive the ten years after closing. Both are useful. Only one of them is the answer to "how much house can I afford."
Ready to see what MDH looks like on your actual numbers? Try the rent-vs-buy calculator → — the affordability section walks the same subtractions above and shows you the honest price ceiling, not the lender's ceiling.