The 28/36 rule, applied. We solve for your maximum responsible price — and the stretch number, too.
| Metric | 28/36 | 43% |
|---|
There are two affordability ceilings in US mortgage lending. One is what banks will allow. The other is what your monthly budget will sustain comfortably. They are usually 30-50% apart in dollars of home price.
| Program | Min down | Min FICO | 2026 loan limit |
|---|---|---|---|
| Conventional (conforming) | 3% – 5% | 620 (740+ for best rates) | $806,500 baseline / $1,209,750 high-cost (FHFA) |
| Conventional (jumbo) | 10% – 20% | 700+ | Above $806,500 (lender-set) |
| FHA | 3.5% | 580 (500 with 10% down) | $526,700 baseline / $1,209,750 high-cost (HUD) |
| VA | 0% | No statutory min (lender 580-620) | No limit since 2020 for full-entitlement |
| USDA Rural | 0% | 640+ (lender) | Income & area limits, no formal price cap |
| 2026 conforming and FHA limits per FHFA / HUD annual announcements (typically late November / early December for the following year). Verify current at fhfa.gov / hud.gov. | |||
Budget 1-2% of home value per year for maintenance (Joint Center for Housing Studies / Harvard). On a $420,000 home that's $4,200-$8,400/year — $350-$700/month on top of PITI. Roof, HVAC, and water heater are the big-ticket items every 10-25 years. Year three of ownership is when these typically start arriving.
The cash you'll actually write checks for at closing is down payment + closing costs + initial escrow funding. Most first-time buyers underestimate by 20-30%.
| Item | Typical % of price | What it covers |
|---|---|---|
| Down payment | 3-20% | Equity in the home |
| Origination + processing | 0.5-1% | Lender fee for making the loan |
| Appraisal | $500-800 flat | Required by lender to confirm collateral value |
| Inspection | $400-600 flat | Optional but always recommended |
| Title insurance + search | 0.5-1% | Protects against ownership disputes |
| Recording + transfer tax | 0.5-2% | Varies wildly by state and county |
| Prepaid escrow | ~1-2% | 2-3 months of property tax + insurance funded into escrow at closing |
| Reserves (post-closing) | Lender-required | 2 months of PITI for conventional; 6 months for jumbo |
Total non-down-payment closing cash typically runs 3-5% of price. On a $420,000 home: $12,600-$21,000 on top of the down payment.
The single most expensive frame in mortgage shopping. Lenders and realtors anchor on monthly payment because they can hit any payment by adjusting the term or assumptions. Negotiate total cost of ownership instead.
Bank pre-approval = the legal ceiling under QM rules. Living at the ceiling means cars, retirement, vacations, and kids' activities all get squeezed. Aim for 80% of the pre-approval as the comfortable cap.
You'll pay 6-8% of sale price when you eventually sell (agent commissions + transfer tax + concessions). This is invisible at purchase but determines how quickly buying beats renting. The rent-vs-buy calculator on this site bakes this in.
Sources: CFPB Qualified Mortgage rules (12 CFR 1026.43), Fannie Mae Eligibility Matrix, Freddie Mac Selling Guide, FHA 4000.1 Handbook, HUD FHA mortgage limits, FHFA conforming loan limits (annual), Joint Center for Housing Studies (Harvard) "State of the Nation's Housing".
The 28/36 rule is a heuristic, not a personalized recommendation. Local property tax rates, insurance markets, HOA structures, and household risk tolerance all shift the right answer. Run your specific numbers through a fee-only fiduciary before signing.
Almost never. Bank approval reflects the maximum allowed under CFPB Qualified Mortgage rules (43% back-end DTI for most loans, 50% for some) — that's the legal ceiling, not the comfortable budget. Most households who borrow at the maximum end up house-poor: cars, vacations, retirement contributions, and kids' activities all get squeezed. The 28/36 rule is the comfortable target; the 43% rule is what banks will let you do.
A two-part affordability heuristic. Spend no more than 28% of gross monthly income on housing PITI (front-end DTI). Spend no more than 36% on all monthly debt obligations including housing (back-end DTI). The rule predates modern mortgage finance — it shows up in early-20th-century building-society guidelines — but holds up because households who follow it consistently report lower financial stress and faster wealth accumulation.
Several programs lower the entry barrier. FHA loans allow 3.5% down with 580+ FICO (or 10% down with 500-579). The 2026 FHA loan limit (HUD): $526,700 baseline, up to $1,209,750 in high-cost areas. FHA mortgage insurance is permanent on most loans — plan to refinance to conventional once you hit 20% equity. Conventional Fannie HomeReady / Freddie Home Possible programs allow 3% down for income-eligible borrowers without permanent MI. State-level first-time buyer programs are listed at consumerfinance.gov.
The "20% down" rule is folklore — what 20% actually buys is exemption from PMI, not loan eligibility. Real options in 2026: Conventional 3% (HomeReady/Home Possible) or 5% standard. FHA 3.5% with 580+ FICO. VA 0% for eligible veterans. USDA 0% in eligible rural areas. For most households, putting less down and keeping reserves liquid is the better trade than putting 20% and emptying savings.
Conventional loans typically need 620+, with the best rates appearing at 740+. FHA accepts down to 580 with 3.5% down (500-579 with 10% down). VA has no statutory minimum, but most lenders set 580-620 overlays. USDA wants 640+. Above the lender's threshold, every 20-point rise in FICO is worth roughly 0.10-0.20% in rate — material money over 30 years. The 30-day rate-shopping window protects your score.
Per FHFA's annual announcement, the 2026 conforming loan limit is $806,500 baseline ($1,209,750 in designated high-cost areas: parts of CA, NY, MA, HI, AK, etc.). Loans above this are jumbo loans, with their own underwriting standards (often 700+ FICO, 20%+ down, slightly higher rates). The conforming limit determines whether your loan can be sold to Fannie Mae / Freddie Mac.
In rough order of forgotten size: (1) maintenance — Joint Center for Housing Studies (Harvard) estimates 1-2% of home value/year; (2) closing costs (3-5% to buy, 6-8% to sell); (3) HOA dues ($300-$800/month on condos and newer SFH); (4) higher utilities than apartment living; (5) furnishing the larger space; (6) lawn care or association fees. Budget closer to 32% of gross for total housing costs (PITI + maintenance + HOA + utility delta) rather than 28% PITI alone.
It depends on credit profiles and DTI. Adding a co-borrower raises qualifying income but the lender uses the lowest middle FICO across borrowers. If your partner has a 750 score and you have a 660, applying solo (if your income alone qualifies) gets the better rate. If your partner has a 580 score, the joint application drops you into a worse rate tier. Run both scenarios. State law also matters in community-property states.
Conventional lenders typically require 2 months of PITI in reserves after closing for primary residences (6 months for investment or jumbo). "Reserves" means liquid assets in your name post-closing. Beyond what the lender requires, the safer personal target is 3-6 months of full PITI plus your other emergency expenses sitting in a high-yield savings account. Year three of homeownership is when major repairs start hitting.
Private Mortgage Insurance protects the lender if you default with less than 20% equity. It runs roughly 0.3-1.5% of the loan annually, depending on credit and LTV. The Homeowners Protection Act of 1998 requires conventional lenders to auto-cancel PMI at 78% LTV on the original schedule, and on request at 80%. FHA mortgage insurance is different — most FHA loans originated 2013+ carry MIP for the life of the loan, so refinancing to conventional once you have 20% equity is the standard escape route.