When considering buying a house, it’s crucial to determine how much you can afford. One common guideline is that the total value of your house should generally be no more than 3 to 5 times your total annual household income (Fidelity, 2023).

### Key Facts

- General guideline: A common guideline is that the total value of your house should generally be no more than 3 to 5 times your total annual household income.
- Lender rules of thumb: Lenders often use certain rules of thumb to determine how much they will loan to a buyer based on their income and expenses. These rules include:
a. The 28% rule: Your mortgage payment (principal and interest) should not exceed 28% of your gross income.

b. The 28% / 36% rule: Your total household debt, including mortgage payment, should not exceed 36% of your gross income.

c. The 32% rule: All household costs, including mortgage, insurance, taxes, and fees, should not exceed 32% of your monthly income.

d. The 40% rule: The total amount of debt you pay each month, including your house, car, credit card, and student loan payments, should not exceed 40% of your monthly income.

e. The 2.5X rule: Choose a home priced at about 2.5 times your annual household income.

f. The 3X rule: If you spend more than 20% of your monthly income to pay down existing debts, you could potentially consider homes priced up to three times your household’s annual income.

g. The 4X rule: If you spend less than 20% of your current take-home income on debt, then you could potentially consider a home priced up to four times your household’s annual income.

h. The 5X rule: If you are entirely debt-free, you can consider homes priced up to 5 times your household income.

It’s important to note that these rules of thumb may vary among lenders, and it’s advisable to shop around and compare different options.

### Lender Rules of Thumb

Lenders often use specific rules of thumb to determine how much they will loan to a buyer based on their income and expenses (Homelight, 2023):

## The 28% Rule

Your mortgage payment (principal and interest) should not exceed 28% of your gross income.

## The 28% / 36% Rule

Your total household debt, including mortgage payment, should not exceed 36% of your gross income.

## The 32% Rule

All household costs, including mortgage, insurance, taxes, and fees, should not exceed 32% of your monthly income.

## The 40% Rule

The total amount of debt you pay each month, including your house, car, credit card, and student loan payments, should not exceed 40% of your monthly income.

## The 2.5X Rule

Choose a home priced at about 2.5 times your annual household income.

## The 3X Rule

If you spend more than 20% of your monthly income to pay down existing debts, you could potentially consider homes priced up to three times your household’s annual income.

## The 4X Rule

If you spend less than 20% of your current take-home income on debt, then you could potentially consider a home priced up to four times your household’s annual income.

## The 5X Rule

If you are entirely debt-free, you can consider homes priced up to 5 times your household income.

It’s important to note that these rules of thumb may vary among lenders, and it’s advisable to shop around and compare different options (Homelight, 2023).

### Sources

- Fidelity. (2023). Before Buying a House. https://www.fidelity.com/viewpoints/personal-finance/before-buying-house
- Homelight. (2023). How Much House Can I Afford? 10 Rules of Thumb. https://www.homelight.com/blog/buyer-how-much-house-can-i-afford-rule-of-thumb/
- CNBC. (n.d.). Mortgage Affordability: How Much Can You Afford. https://www.cnbc.com/select/mortgage-affordability/

## FAQs

### What is a general guideline for how much house I can afford?

A common guideline is that the total value of your house should generally be no more than 3 to 5 times your total annual household income.

### What is the 28% rule?

The 28% rule states that your mortgage payment (principal and interest) should not exceed 28% of your gross income.

### What is the 36% rule?

The 36% rule states that your total household debt, including mortgage payment, should not exceed 36% of your gross income.

### What is the 40% rule?

The 40% rule states that the total amount of debt you pay each month, including your house, car, credit card, and student loan payments, should not exceed 40% of your monthly income.

### What is the 2.5X rule?

The 2.5X rule states that you should choose a home priced at about 2.5 times your annual household income.

### What is the 3X rule?

The 3X rule states that if you spend more than 20% of your monthly income to pay down existing debts, you could potentially consider homes priced up to three times your household’s annual income.

### What is the 4X rule?

The 4X rule states that if you spend less than 20% of your current take-home income on debt, then you could potentially consider a home priced up to four times your household’s annual income.

### What is the 5X rule?

The 5X rule states that if you are entirely debt-free, you can consider homes priced up to 5 times your household income.