This guide covers affordability rules used in the US, UK, Canada and Australia. It is educational content, not financial advice.
“How much house can I afford?” is usually the first question buyers ask, and one of the easiest to get wrong. The amount a lender is willing to lend you and the amount you can comfortably repay are often two very different numbers.
In this guide you will learn the main affordability rules lenders use in different countries, work through a step by step example, and see how to find a price range that fits your real life, not just a lender’s spreadsheet. If you are new to home loans, our guide on how a mortgage works explains the basics first.
The Short Answer
Most lenders decide how much you can borrow based on four things:
- Your income, and how stable it is.
- Your existing debts, such as car loans, student loans and credit cards.
- Your deposit or down payment, and your savings for upfront costs.
- The interest rate, often tested at a higher “stress” rate to make sure you could cope if rates rise.
From those inputs, lenders calculate a maximum loan. Add your deposit and you get a rough maximum purchase price. But the smartest buyers treat that figure as a ceiling, not a target.
Affordability Rules by Country
Each country has its own way of measuring affordability. Knowing the rule that applies where you are buying helps you understand what lenders will look at.
United States: The 28/36 Rule and DTI
US lenders focus on your debt to income ratio (DTI), which compares your monthly debt payments with your gross (before tax) monthly income. A widely used guideline is the 28/36 rule:
- Your housing costs (principal, interest, property taxes and insurance) should be no more than 28% of your gross monthly income.
- Your total monthly debt payments, including housing, should be no more than 36%.
Many loan programs allow higher ratios, sometimes 43% or more for total debts, especially with strong credit or government backed loans such as FHA loans. Still, the 28/36 rule is a sensible starting point for a comfortable budget.
United Kingdom: Income Multiples and Affordability Checks
UK lenders traditionally start with an income multiple. Most will lend up to around 4 to 4.5 times your annual income (or combined income for joint applications), and some go higher for certain professions or larger incomes.
On top of that, lenders run a detailed affordability assessment that looks at your regular spending, commitments and dependants. They also check whether you could still afford the payments if interest rates rose, so the final figure may be lower than a simple multiple suggests.
Canada: GDS, TDS and the Stress Test
Canadian lenders use two ratios:
- Gross Debt Service (GDS): housing costs (mortgage payment, property taxes, heating and part of any condo fees) as a share of gross income.
- Total Debt Service (TDS): housing costs plus all other debt payments.
For insured mortgages, the typical maximums are a GDS of 39% and a TDS of 44%. In addition, most borrowers must pass the mortgage stress test, which means qualifying at the higher of a set minimum rate or your contract rate plus 2 percentage points. This reduces how much you can borrow but builds in protection against rate rises.
Australia: Serviceability Buffers and DTI
Australian lenders assess “serviceability”, which is your ability to keep up repayments. Under guidance from the banking regulator, lenders typically test your loan at an interest rate around 3 percentage points above the actual rate. They also look at your living expenses, other debts and your debt to income ratio, and they treat very high DTI levels (often six times income or more) with extra caution.
What the Rules Have in Common
The details differ, but the logic is the same everywhere. Lenders want your housing costs to take up a manageable share of your income, and they want to know you could survive higher rates. You can use that same logic to set your own budget.
Step by Step: Working Out Your Price Range
Let’s walk through an example using the US style 28/36 rule, since it is easy to apply anywhere. The numbers are in dollars, but the method works in any currency.
Our example household:
- Gross annual income: $100,000 (about $8,333 a month)
- Existing debt payments (car loan and student loan): $500 a month
- Estimated property taxes and home insurance: $400 a month
- Mortgage rate: 6.5% fixed over 30 years
Step 1: Find your housing limit
28% of $8,333 = $2,333 a month for total housing costs.
Step 2: Check the total debt limit
36% of $8,333 = $3,000. Subtract existing debts of $500 and you have $2,500 available for housing.
The lower of the two figures is the one that counts, so the housing budget is $2,333.
Step 3: Subtract taxes and insurance
$2,333 minus $400 = $1,933 a month for principal and interest.
Step 4: Turn the payment into a loan amount
At 6.5% over 30 years, a payment of $1,933 supports a loan of roughly $305,800.
Step 5: Add your deposit
- With a 20% deposit, the maximum home price would be about $382,000 (a deposit of around $76,000).
- With a 10% deposit, the price would be about $340,000, but you would likely also pay mortgage insurance, which reduces what you can afford a little.
So under the 28/36 rule, this household’s comfortable price range sits somewhere around $340,000 to $380,000, depending on the deposit.
How Interest Rates Change What You Can Afford
The same monthly budget buys a very different home depending on the rate. Using the example payment of $1,933 a month over 30 years:
| Interest rate | Maximum loan |
|---|---|
| 5.5% | about $340,400 |
| 6.5% | about $305,800 |
| 7.5% | about $276,500 |
| 8.5% | about $251,400 |
A two percentage point rise in rates cuts borrowing power by roughly $54,000. That is why stress tests exist, and why you should think about how a higher rate would affect you, especially if you plan to take a variable-rate loan. Our guide on fixed vs variable rate mortgages covers this choice in detail.
Three Different Answers to the Same Question
Here is something many buyers do not realize: depending on which method you use, the same household can get very different answers.
| Method | Estimated maximum loan |
|---|---|
| Income multiple of 4.5 times | about $450,000 |
| 28/36 rule at 6.5% | about $305,800 |
| 30% of take home pay (comfort budget) | about $237,000 |
The last line uses a more conservative approach. If the household takes home about $6,300 a month after tax and keeps total housing costs to around 30% of that ($1,900), then after $400 for taxes and insurance, $1,500 is left for the mortgage payment. At 6.5% over 30 years, that supports a loan of about $237,000.
None of these figures is “correct”. The income multiple is a quick screening tool, the 28/36 rule is a common lending guideline, and the take home pay method reflects what life feels like month to month. The closer you stay to the conservative end, the more room you keep for savings, emergencies and the rest of your life.
Don’t Forget the Upfront Costs
Your deposit is only part of the cash you need. Before you set a price range, budget for these one off costs:
- Closing or completion costs. Legal, conveyancing, title, valuation and lender fees often add up to a few percent of the purchase price.
- Purchase taxes. Stamp duty in the UK and Australia, land transfer tax in several Canadian provinces, and transfer or recording taxes in parts of the US. First time buyers sometimes get reliefs or exemptions.
- Mortgage insurance. Required in many cases when your deposit is below 20%, either paid monthly or added to the loan.
- Moving and setup costs. Removals, furniture, appliances and any urgent repairs.
- An emergency fund. Many advisers suggest keeping at least three to six months of essential expenses in savings after you buy.
If paying for all of this would empty your savings, it may be a sign to aim for a lower price or wait while you save more.
The Ongoing Costs of Owning a Home
Lenders focus mainly on your mortgage payment, property taxes and insurance, but owning a home costs more than that. Include these in your monthly budget:
- Maintenance and repairs. A common rule of thumb is to set aside about 1% of the home’s value each year, more for older properties.
- Utilities. Energy, water and internet costs are often higher in a house than in a rented apartment.
- Condo, strata or HOA fees, and service charges on UK leasehold properties.
- Council tax or local rates, depending on the country.
- Commuting costs. A cheaper home further away can cost more in transport.
Affordability in Different Situations
The basic rules apply to everyone, but a few situations need extra thought.
Buying alone. A single income has no backup if you lose your job or fall ill. Consider a larger emergency fund and a price that leaves more room in your budget than the rules require.
Buying as a couple. Lenders usually combine both incomes, which increases borrowing power. Before relying on both salaries, ask whether you could still pay the mortgage if one of you stopped working for a while, for example after having a child.
Self employed borrowers. Lenders often average your income over the last two years and may ask for tax returns, accounts and bank statements. If your earnings vary a lot, build your budget on a lower, more typical year rather than your best one.
Buying with irregular income. Bonuses, commission and overtime may be counted only partly, or not at all. Base your comfortable budget on your guaranteed pay and treat anything extra as a bonus for savings or overpayments.
How to Afford More (Safely)
If your target home is just out of reach, these steps can improve your position without stretching your budget dangerously:
- Pay down existing debts. Clearing a $400 car payment can raise your borrowing capacity much more than a small pay rise.
- Improve your credit score. A better score can unlock lower rates, and a lower rate increases how much your payment can support.
- Save a larger deposit. Reaching 20% can remove mortgage insurance and qualify you for better deals.
- Compare lenders or use a broker. Rates and affordability rules vary between lenders, sometimes significantly.
- Check first time buyer programs. Many countries offer grants, reduced deposits, tax relief or special savings accounts for first time buyers.
- Consider a longer term carefully. A longer loan term lowers the monthly payment but increases the total interest you pay.
Common Mistakes to Avoid
- Borrowing the maximum you are offered. Lenders approve loans based on averages. Your real spending, plans and priorities may be very different.
- Budgeting on today’s rate only. If you choose a variable rate or a short fixed period, plan for your payment to rise.
- Forgetting future life changes. Children, a career change or a partner reducing their hours can change your budget quickly.
- Using all your savings for the deposit. Leaving no emergency fund makes an unexpected repair or job loss far more stressful.
- Ignoring ongoing costs. Maintenance, fees and utilities can add hundreds a month to the true cost of owning a home.
Frequently Asked Questions
How much house can I afford on a $100,000 salary?
It depends on your debts, deposit and interest rate. In the example above, a household earning $100,000 with $500 of monthly debts could afford roughly $340,000 to $380,000 under the 28/36 rule at 6.5%. A more conservative budget would point to a lower figure.
What percentage of my income should go on housing?
A common guideline is no more than 28% of gross income, or around 30% of take home pay. Lenders in some countries allow more, but staying lower gives you more financial breathing room.
Does my deposit affect how much I can borrow?
Yes. A bigger deposit lowers the amount you need to borrow and your loan to value ratio, which can give you access to better rates and help you avoid mortgage insurance.
Should I get pre-approved before house hunting?
It is a good idea. A pre-approval, or agreement in principle in the UK, shows how much a lender is likely to offer and helps you focus on homes in your range. Remember it is a maximum, not a recommendation.
The Bottom Line
How much house you can afford depends on your income, debts, deposit and the interest rate, and every country’s lenders measure it slightly differently. Use the rules lenders apply to understand your maximum, then use your own budget to decide what feels comfortable.
A home you can afford easily leaves room for savings, emergencies and the rest of your life. Before you commit, run the numbers for a higher interest rate, count every upfront and ongoing cost, and compare offers from several lenders. If you are unsure, a licensed mortgage adviser or broker in your country can help you find a figure that fits your situation.
Disclaimer: This article is for general educational purposes only and does not constitute financial, legal or tax advice. Lending rules, rates and government programs differ by country and lender and change over time. Always confirm details with a qualified professional and your lender before making decisions.