Buying a home is the largest financial decision most people will ever make. But in 2025, with fluctuating interest rates and rising home prices, the old advice isn't always enough. This guide breaks down exactly how to calculate your true home affordability.
The 28/36 Rule
Lenders typically use the 28/36 rule to determine your borrowing power:
- 28%: Your total monthly housing payment (Principal, Interest, Taxes, Insurance) should not exceed 28% of your gross monthly income.
- 36%: Your total debt payments (including the new mortgage) should not exceed 36% of your gross monthly income.
Hidden Costs
Beyond the sticker price, you must account for:
- Property Taxes (usually 1-2% of home value annually).
- Homeowners Insurance.
- Maintenance (budget 1% of the house value per year).
- Closing Costs (typically 2-5% of the purchase price).
Why Monthly Payment Matters Most
While your total loan amount is important, your daily life is governed by your monthly cash flow. Ensure your payment leaves room for retirement savings and emergency funds.
Try our Mortgage Affordability Calculator to see the full breakdown for your specific numbers.
Disclaimer: This article is for educational purposes only and does not constitute financial, legal, or medical advice. Consult a qualified professional for guidance specific to your situation.