Mortgage Affordability: How Much House Can You Afford?

Buying a home is likely the biggest financial decision you will make. Here is how to figure out what you can afford.

The Key Rules

28/36 Rule

• 28%: Monthly housing costs should not exceed 28% of gross monthly income
• 36%: Total debt payments should not exceed 36% of gross monthly income

Example

Gross monthly income: $6,000

• Max housing cost: $6,000 × 28% = $1,680/month
• Max total debt: $6,000 × 36% = $2,160/month
• If you have $400/month in other debt: max housing = $1,760/month

What Is Included in "Housing Cost"?

PITI: Principal + Interest + Taxes + Insurance

ComponentTypical % of Payment

|-----------|---------------------|

Principal + Interest65–75% Property Tax10–15% Homeowner's Insurance3–5% PMI (if <20% down)5–10%

How Down Payment Affects Affordability

Down PaymentEffect

|-------------|--------|

5%Requires PMI, higher monthly payments 10%May still need PMI 20%No PMI, lower monthly payments 30%+Lowest payments, strongest offer

Korean Housing Market Considerations

LTV (Loan-to-Value) Limits

• Regulated area: 40–50% LTV
• Non-regulated area: Up to 70% LTV
• This means larger down payments required in Korea

DSR (Debt Service Ratio)

• Total debt payments must not exceed 40% of annual income
• Includes ALL loans, not just the mortgage

Hidden Costs to Budget For

1. Closing costs: 2–5% of purchase price

2. Moving expenses: ₩500K–2M

3. Maintenance reserve: 1–2% of home value annually

4. Furniture and appliances: Budget varies widely

5. Acquisition tax: 1–3% (Korea)

Affordability Calculator Approach

1. Calculate 28% of gross monthly income

2. Subtract property tax estimate (÷12)

3. Subtract insurance estimate (÷12)

4. Remaining amount = available for principal + interest

5. Use mortgage tables to find the home price this supports

Use our loan calculator to model different mortgage scenarios.