How much house can I afford?

The amount a lender will offer you and the amount you can comfortably repay are often two different numbers. Here’s how to find both.

The US approach: the 28/36 rule

Many US lenders start from two ratios, measured against your gross (pre-tax) monthly income:

• 28%: your total housing cost (mortgage principal and interest, property tax, insurance and any HOA fees) should be no more than 28% of gross monthly income.
• 36%: all your debt payments together (housing plus car loans, student loans and credit card minimums) should be no more than 36%.

For a household earning $90,000 a year ($7,500 a month), that means up to about $2,100 a month for housing and $2,700 for all debts. Some loan programs, such as FHA loans, allow higher ratios. Being allowed a higher ratio doesn’t make it a good idea, though.

The UK approach: income multiples and affordability checks

UK lenders usually cap borrowing at around 4 to 4.5 times your annual income (or joint income). A few go up to 5 or 6 times for higher earners or certain professions. They also run an affordability check: they look at your outgoings and “stress test” whether you could still pay if rates rose.

A couple earning £60,000 together might borrow about £270,000 at 4.5×. Add a £30,000 deposit and they could look at homes around £300,000.

Work out your own comfortable number

1. Start from take-home pay, not gross pay. Use our US paycheck or UK take-home pay calculator.
2. List your fixed costs: bills, transport, childcare, debt repayments and savings.
3. Decide on a housing budget that still leaves room for an emergency fund and the occasional treat. Around 25 to 30% of take-home pay is a comfortable level for many people.
4. Work backwards with the mortgage calculator: change the home price until the monthly payment fits your budget.

Don’t forget the upfront costs

• US: down payment, closing costs (often 2 to 5% of the loan), inspection and appraisal fees, plus PMI if you put down less than 20%.
• UK: deposit, Stamp Duty Land Tax (with relief for first-time buyers below set thresholds), solicitor’s fees, survey and mortgage arrangement fees.

Leave yourself a safety margin

Rates change. In the UK, most fixed deals end after 2 to 5 years, so before you commit, try your payment at a rate 2 to 3 percentage points higher. If that number would break your budget, consider a cheaper home or a bigger deposit.

This guide is general information, not financial advice. A qualified mortgage adviser can look at your full situation.