"How much house can I afford?" is one of the most searched real estate questions online — and one of the most poorly answered. Blanket rules like "3x your annual salary" are dangerously imprecise in an era of 6.5% mortgage rates. Here's how to get an accurate number for your specific situation.
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Home Affordability Calculator →Method 1: The 28/36 Rule
The most widely cited US affordability guideline:
- 28% rule: Total housing costs (mortgage principal + interest + property taxes + insurance) should not exceed 28% of gross monthly income.
- 36% rule: Total debt payments (housing + all other debt) should not exceed 36% of gross monthly income.
Example — $80,000 annual salary ($6,667/month gross):
- 28% housing limit: $1,867/month
- At 6.5% rate, 30-year term: $1,867/month services approximately $295,000 in mortgage
- With 20% down payment: maximum property price = $295,000 / 0.80 = $369,000
Method 2: Income Multiples (UK Standard)
UK mortgage lenders typically use income multiples as their primary affordability test:
- Single borrower: 4–4.5× annual salary (some lenders offer 5× to strong applicants)
- Joint borrowers: 3.5–4.5× combined salary
On a £50,000 salary: maximum mortgage = £200,000–£225,000 (4–4.5×). With a 20% deposit: maximum property = £250,000–£281,000.
Note: Income multiples are the ceiling, not a recommendation. Just because you can borrow 4.5× doesn't mean you should — especially with rates above 4%.
The Rate Impact: 2021 vs 2025
This is the defining shift in housing affordability over the past four years:
| Scenario | Rate | Max loan at $2,000/month | Max home (20% down) |
|---|---|---|---|
| 2021 (rate trough) | 2.75% | $462,000 | $577,000 |
| 2024 (rate peak) | 7.25% | $274,000 | $342,000 |
| 2025 (current) | 6.5% | $305,000 | $381,000 |
Same income, same monthly payment — but $196,000 less house compared to 2021. This is why affordability data shows such sharp deterioration despite income growth.
Real Examples: What Can You Afford?
Example 1: Single buyer, $60,000 income, $400/month in other debt, 10% deposit
- Gross monthly income: $5,000
- 36% total debt limit: $1,800/month max for all debt
- Available for housing: $1,800 − $400 = $1,400/month
- At 6.5%: max mortgage = approximately $221,000
- With 10% deposit: max property ≈ $221,000 / 0.90 = $246,000
Example 2: Couple, combined £80,000 income, no other debt, 20% deposit
- UK lender income multiple: 4× combined = £320,000 maximum mortgage
- Monthly payment check at 4.5%: £1,780/month = 26.7% of £80,000/12 = £6,667 — within 28% limit ✓
- With 20% deposit: maximum property = £320,000 / 0.80 = £400,000
What Lenders Won't Tell You
Lender approval gives you a ceiling — not a target. Before stretching to your maximum:
- Model the stress test: What happens to your budget if rates rise 2%? Can you still make payments?
- Include all ownership costs: Add property taxes, insurance, maintenance (budget 1% of value/year), and utilities to your monthly cost estimate.
- Protect your emergency fund: Don't wipe out savings for a larger deposit. Maintain 3–6 months of expenses after closing.
- Preserve retirement contributions: A mortgage that forces you to pause pension contributions is not just a housing decision — it's a retirement decision.
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