The 28/36 Rule

Lenders typically use the 28/36 rule to determine affordability:

  • 28%: Your monthly housing costs (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income
  • 36%: Your total monthly debt (housing + car payments + credit cards + other debt) should not exceed 36% of gross income

Calculate Your Maximum Home Price

Here's a simple formula:

  1. Determine your gross monthly income
  2. Multiply by 0.28 for maximum housing payment
  3. Subtract estimated property taxes and insurance
  4. The remainder is your maximum mortgage payment
  5. Use a mortgage calculator to find the corresponding home price

Example Calculation

If your household income is $100,000/year:

  • Gross monthly income: $8,333
  • Maximum housing payment (28%): $2,333
  • Estimated taxes & insurance: $600/month
  • Available for mortgage: $1,733/month
  • At 7% interest, 30-year term: ~$260,000 loan
  • With 10% down: ~$290,000 home price

Don't Forget Hidden Costs

Your budget should also account for:

  • Property maintenance (1-2% of home value annually)
  • HOA fees (if applicable)
  • Utilities
  • Moving expenses
  • Immediate repairs or updates
  • Furniture and appliances

NJ/NY Specific Considerations

Property taxes in New Jersey are among the highest in the nation. Be sure to research the specific tax rate for any home you're considering. In New York City, factor in any co-op or condo maintenance fees.