How much mortgage can you actually afford?
Almost every buyer asks me some version of the same question: "How much mortgage can I afford based on my income?"
It's a fair question, but there's no clean formula for it. I've had two clients with the exact same salary get approved for nearly the same loan amount, and one of them was clearly stretched thin while the other had room to breathe. Same income, very different situations. One had a car payment and daycare costs. The other didn't.
That's the gap I want to talk about: what a lender says you qualify for, and what you can actually live with month to month.
What lenders actually look at
When we figure out how much you can borrow, we look at more than your paycheck. The main factors are:
Gross monthly income
Current monthly debt payments
Credit history and score
Savings and down payment
Estimated cost of owning the home (taxes, insurance, etc.)
The specific loan program and its requirements
Income matters, obviously, but it's one piece. Say you're bringing home $100,000 a year. That's about $8,333 a month before taxes. That does not mean you can comfortably handle a $3,000 mortgage payment, or even $2,500. Taxes, insurance, your other bills, and whatever you're trying to save all factor in.
The 28/36 rule (and why it's a starting point, not gospel)
You may have run across the 28/36 rule. It's a rough guideline, not a hard rule every lender follows:
About 28% of your gross monthly income toward housing costs
About 36% of your gross monthly income toward all debt, housing included
Depending on the loan program, we sometimes have more flexibility. But it's still a useful gut check.
Here's what it looks like with real numbers. On $100,000 a year, or $8,333 a month:
| Category | Monthly amount |
|---|---|
| Gross monthly income | $8,333 |
| 28% housing guideline | $2,333 |
| 36% total debt guideline | $3,000 |
If that household already has $800 a month going toward a car payment or student loans, the housing number effectively drops closer to $2,200. That's why I always ask about existing debt before we talk about a target payment. Two households making the same income can have very different amounts of breathing room.
What actually goes into your monthly payment
A lot of buyers only think about principal and interest. That's just part of the picture.
Principal and interest. This pays down your loan balance and covers interest, based on your rate and loan term.
Property taxes. These vary quite a bit depending on where you're buying, whether that's in Sioux Falls proper, out in Harrisburg, or over in Tea.
Homeowners insurance. Almost always required, and it's built into your monthly payment.
Mortgage insurance. Depending on your loan type and down payment, this may or may not apply. If you want to see how this plays out across loan types, take a look at our loan programs.
HOA dues. If the property has an association, factor those in.
Maintenance and repairs. Your lender doesn't calculate this into your approval, but you should. Water heaters die. Roofs wear out. Appliances quit. Budget for it.
Gross income versus what actually hits your bank account
Lenders qualify you based on gross income, before taxes and deductions. Your household runs on what's left after that.
If your gross monthly income is $8,333, what lands in your checking account after taxes, retirement contributions, and health insurance will be noticeably less. That's the number your budget has to work with, not the number on your pay stub.
I've seen buyers get approved for a payment and assume it's manageable because the bank said yes. The bank's math doesn't account for your gym membership, your kid's activities, or how much you want to put into savings. Be honest with yourself about what fits.
A rough look at different income levels
Using the 28% guideline as a starting point:
| Annual income | Gross monthly income | 28% housing guideline |
|---|---|---|
| $60,000 | $5,000 | $1,400 |
| $80,000 | $6,667 | $1,867 |
| $100,000 | $8,333 | $2,333 |
| $120,000 | $10,000 | $2,800 |
| $150,000 | $12,500 | $3,500 |
These aren't approval amounts. They're a place to start the conversation before you factor in your actual debt, your down payment, and the real cost of the home you're looking at.
How to figure out what you can really afford
Before you start touring homes, sit down with your take-home pay and subtract:
Car payments and other debt
Groceries and everyday expenses
Utilities and transportation
Childcare
Insurance and medical costs
Retirement contributions
What you want in savings for emergencies
Whatever's left is what you're genuinely comfortable putting toward housing. If a lender says you qualify for $3,000 but your budget only leaves $2,300, don't stretch to hit the higher number just because you can. I'd rather see a client buy a home they can live with than one that leaves them counting down to the next paycheck.
If you want a good outside resource for building this budget, the CFPB's guide to preparing for homeownership walks through the same idea in more detail.
What happens when you buy at the top of your approval
Life changes. A car needs replacing. Property taxes go up. A job situation shifts. None of that is unusual, but it hits a lot harder when your mortgage is already eating most of your income.
I've watched a $3,000 payment leave a household with almost nothing in reserve, and I've watched a $2,400 payment on a similar home leave room to actually save and handle the unexpected. That difference matters more than people think.
Should you get preapproved first?
Yes. Preapproval gives you a real number to work with before you start shopping, and it strengthens your offer in a competitive market like Sioux Falls right now. It involves reviewing your income, assets, debt, and credit.
But preapproval tells you what you qualify for. It doesn't tell you what you should spend. I'd rather walk through both numbers with you: what you qualify for, and what actually fits your life. Those two conversations matter equally.
The Fairway Advantage Pre-Approval is what gets you there. It’s a fully underwritten preapproval that carries real weight when you’re comepting for a home.
Common questions I get
How much of my income should go toward my mortgage? 28% is a reasonable starting point, but it's not a rule that fits every household. Your debt, take-home pay, and savings goals all shift the number.
Can I buy a home on one income? Yes, depending on your income, debt, and savings. If you're relying on a single income, it's worth thinking through how you'd handle the payment if that income dropped for a while.
Does a bigger down payment mean I can afford more house? It can lower your loan amount and monthly payment, but don't drain your savings to get there. You still need a cushion for emergencies and the regular costs of homeownership.
Should I buy the most house I qualify for? Not necessarily. Qualifying for an amount tells you what a lender will finance. It doesn't tell you what's actually a good fit for your household.
How do I lower how much I need to borrow? A less expensive home, a larger down payment, or paying down debt beforehand can all help. Each comes with tradeoffs worth talking through.
Buy the home that fits your life, not just your approval letter
Your mortgage payment will be part of your budget for years. Your income and expenses will change along the way, so it's worth leaving yourself some room now.
The right mortgage isn't necessarily the biggest one you can get approved for. It's the one that lets you own a home and still have a life outside of it.
If you want to talk through what a realistic budget looks like for you, whether you're in Sioux Falls, Harrisburg, Brandon, or anywhere else in the Sioux Empire. Our loan officers or I are happy to sit down and go through the numbers with you.
Troy Lage, Loan Officer | Fairway Heartland NMLS #400287