How Much House You Can Afford (vs How Much the Bank Approves)
The bank approves you for $420K. That doesn’t mean buying a $420K house is a good idea. The bank’s “approved” number and your “comfortable” number live in different math, and the gap is usually 20-30%.
What the 28/36 rule actually says
Two ratios:
- Front-end ratio (28%): Monthly housing cost (mortgage + tax + insurance) ≤ 28% of gross monthly income.
- Back-end ratio (36%): Total monthly debt (housing + car + student loans + minimum credit cards) ≤ 36% of gross.
On $100K gross / $8,333 monthly:
- 28% × $8,333 = $2,333/month for housing
- 36% × $8,333 = $3,000/month for all debt combined
At 6.5% mortgage rate, 20% down, $2,333/month covers principal + interest of about $1,800 (after backing out tax and insurance), which qualifies you for roughly $340K-$420K in home price depending on local property tax.
That’s the bank-approved ceiling. Now the part the bank doesn’t model.
What the bank’s math leaves out
The 28/36 rule was calibrated decades ago when retirement was someone else’s problem (pensions), healthcare was cheap, and mortgages dominated household debt. It hasn’t kept up.
We ran the same $100K household with realistic 2026 cost lines:
| Line item | Monthly | Notes |
|---|---|---|
| Gross income | $8,333 | $100K / 12 |
| Federal + state tax (~25% effective) | −$2,083 | |
| Health insurance (employer plan) | −$300 | |
| Take-home | $5,950 | |
| Bank-approved housing | $2,333 | 28% of gross |
| Remaining for everything else | $3,617 | |
| 401(k) at 15% of gross | $1,250 | |
| Emergency fund building | $300 | |
| Maintenance (banks don’t model) | $300 | 1% of $360K home / 12 |
| Groceries, utilities, transport | $1,200 | conservative |
| Subtotal | $3,050 | |
| What’s left | $567 | for kids, vacations, life, anything unexpected |
If you max out the bank’s housing approval at $2,333/month, you have $567/month for everything outside the budget. One car repair, one daycare expense, one medical bill — and you’re either dipping into savings or not contributing to retirement that month.
That’s house-poor. The bank approved it. The math doesn’t.
What “comfortable” actually looks like
Same household, but housing capped at 22% of gross instead of 28%:
| Line item | Monthly |
|---|---|
| Gross income | $8,333 |
| Tax + insurance | −$2,383 |
| Housing at 22% (mortgage + tax + insurance) | −$1,833 |
| 401(k) at 15% | −$1,250 |
| Emergency fund building | −$300 |
| Maintenance | −$250 |
| Groceries, utilities, transport | −$1,200 |
| Remaining buffer | $1,117 |
A $1,100/month buffer instead of a $570/month buffer. The 6 percentage point difference (22% vs 28%) buys you breathing room equivalent to roughly $530/month — enough to absorb most life events without breaking the budget.
That 22%-of-gross ceiling translates to roughly $280K-$320K in home price at 6.5% rates with 20% down. About 20-25% below bank-approved.
Where the bank’s number does work
Three scenarios where stretching to the 28% ceiling is more defensible:
- Strong dual income. Two earners create natural diversification. One job loss doesn’t immediately threaten the mortgage. The 28% ceiling assumes your income holds; dual income makes that assumption more reliable.
- No other debt. If you have no car payment, no student loans, and no credit card balance, the 36% back-end ratio has more headroom for housing.
- Income trajectory. Early-career, you might be at $100K with a strong upward path to $130K-$150K in 3-5 years. The 28% feels tight today and reasonable in 3 years. Stretching is a bet on income growth, with the cost being 3 tight years.
The honest test: if a $400 unexpected expense in any given month would force you to skip a 401(k) contribution or pull from an emergency fund, you’re at the wrong ceiling.
What changes the affordability number
Three modifiers most calculators don’t include:
- Maintenance reserve. Banks don’t require it; you need it. 1% of home value annually, lumpy by year. A paid-off roof at year 15 costs $20K all at once.
- Property tax variance. 0.3% in Hawaii, 2.5% in New Jersey. The same $400K home costs $100/month in tax in one state and $830/month in another. The 28% ceiling applies to PITI (principal, interest, tax, insurance), so high-tax states force you to a lower home price for the same income.
- HOA and condo fees. When applicable, $200-$800/month, not deductible against mortgage interest. Pure consumption cost. Reduces what you can afford by ~$30K-$120K of home price for every $200/month of HOA.
What this scenario doesn’t include
- Single income with kids. Childcare can run $1,500-$2,500/month per child in major US metros. The 22% ceiling drops to 15-18% in those cases. Otherwise the math collapses inside 12-18 months of a kid arriving.
- HCOL metro adjustments. SF, NYC, LA, Boston have rent that often exceeds 35-40% of gross for typical earners. The 28/36 framework assumes a market where comparable rent is ~25-30%; in HCOL metros the absolute affordability bar is harder to meet by either rule.
- Property appreciation expectations. This article focuses on cash flow affordability. If you expect 4%+ annual appreciation in your specific market, the math shifts toward “stretch a little” because the equity build-up is larger. Most US markets in 2026 don’t justify that assumption.
What to actually do
- Compute take-home pay (gross minus tax minus health premiums).
- Subtract retirement contributions you actually want to make (15% of gross is a reasonable target).
- Subtract baseline life costs (groceries, transport, utilities, emergency fund building).
- Cap housing at the lower of:
- 28% of gross (bank ceiling)
- 35% of remaining take-home after retirement
- Whichever is lower is your real housing budget.
Open the Rent vs Buy Calculator → to compare what your real housing budget looks like as ownership vs renting at 2026 rates. The output is the maximum honest home price for your situation, not the maximum bank-approved one.
Quick answers
What is the 28/36 rule for mortgages?
Housing costs (mortgage + tax + insurance) ≤ 28% of gross monthly income; total debt payments ≤ 36%. It's a guideline that banks use as a ceiling for qualification, not a target for comfortable affordability.
How much house can I afford on $100K salary?
Bank-approved: ~$420K at 6.5% mortgage rate with 20% down. Comfortable: closer to $300-350K, because the bank's 28/36 rule excludes retirement contributions, kids, and emergency fund building. The gap between approved and comfortable is typically 20-30%.
What costs do banks ignore when approving you?
Maintenance (1% of home value/year), 401(k) contributions for retirement, emergency fund building, future kids/childcare, lifestyle inflation, and the opportunity cost of locking up your down payment. The bank cares whether you can repay, not whether the rest of your financial life still works.