How Much House Can I Afford in 2026? Mortgage Payments, PMI and the 28/36 Rule

Start with the 28/36 rule

A long-standing guideline says housing costs should be no more than 28% of your gross monthly income, and all debt payments together - housing, car, student loans, credit cards - no more than 36%. Many lenders will approve borrowers up to about 43-45% total debt-to-income (DTI) on conventional loans, and higher on some government-backed loans. Approval is not the same as comfort: the lower your ratio, the more room you keep for savings, repairs and emergencies.

Example: a household earning $110,000 a year makes about $9,167 a month. At 36% total DTI, all debts can be about $3,300. If $600 already goes to a car loan and cards, about $2,700 is left for the full mortgage payment.

What is in a mortgage payment (PITI)

• Principal - the part that pays down the loan.
• Interest - the lender's charge; most of the payment in early years.
• Taxes - property tax, usually collected monthly into escrow.
• Insurance - homeowners insurance, also usually escrowed.

Add PMI if you put down less than 20% on a conventional loan, and HOA dues if the home is in an association. On a $400,000 home with 20% down at 6.5% for 30 years, principal and interest are about $2,023 a month; with $400 of property tax and $150 of insurance, the payment is about $2,573.

Private mortgage insurance (PMI)

PMI protects the lender, not you. It commonly costs about 0.3-1.5% of the loan per year depending on your credit score and down payment. On a conventional loan you can ask to remove it once you reach 20% equity, and it ends automatically at 22% based on the original schedule. FHA loans use a different mortgage insurance premium with its own rules.

15-year or 30-year?

A 15-year loan has a higher payment but a lower rate and far less total interest. A 30-year loan keeps the required payment low, and you can still pay extra when money allows. Even $200 a month extra on a 30-year loan can cut years off the term and save tens of thousands in interest.

Closing costs and cash to close

Expect buyer closing costs of roughly 2-5% of the price: lender fees, appraisal, title insurance, recording and transfer taxes, and prepaid tax and insurance. On a $400,000 home with 20% down, you might need about $92,000 in cash on closing day. Your lender's Loan Estimate and, later, the Closing Disclosure show the exact figures.

When renting is the smarter move

Buying builds equity, but the first years of a mortgage are mostly interest, and selling a home typically costs about 6% of its price. If you may move within five years, renting and investing the difference often comes out ahead. The longer you stay, the more buying tends to win.

Already own? Two more tools

If rates have fallen since you bought, compare your current loan with a new one and check the break-even month before paying closing costs again. If you need cash for a renovation, a home equity line of credit lets you borrow against equity - but your home secures it, so use it carefully.

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