Key Takeaways

1. The 28/36 rule remains the industry standard: your monthly housing payment should not exceed 28% of your gross monthly income, and total monthly debt payments should not exceed 36% of gross income.
2. Add 30-50% to your base principal and interest payment to account for hidden ongoing costs like property taxes, insurance, HOA fees, maintenance, and utilities.
3. Paying down high-interest debt before applying for a mortgage can lower your debt-to-income (DTI) ratio by 5-15 percentage points, increasing your maximum approval amount and qualifying you for lower interest rates.
4. Lenders often approve you for more house than you can comfortably afford, so always adjust the final number to align with your personal savings goals and discretionary spending habits.
5. A 20% down payment eliminates private mortgage insurance (PMI), which can reduce your monthly payment by $100-$300 for a $400,000 mortgage and save you tens of thousands over the life of your loan.
6. Local market conditions impact affordability significantly: median home prices in high-cost metros like San Francisco are 3x higher than in affordable metros like Cleveland, so always adjust your calculations for your specific location.