Where do these numbers come from?
- Freddie MacPrimary Mortgage Market Survey: 30-yr fixed 7.32%, 15-yr 6.68%week of Oct 22, 2026
- U.S. Census BureauACS 5-year table B25103, property taxes paid by ZIP2020–2024 estimates
- U.S. Census BureauACS 5-year table B25077, median home value2020–2024 estimates
- CFPBWhen PMI must be removed (Homeowners Protection Act, 78% LTV)accessed Oct 23, 2026
- Insurance Information InstituteAverage homeowners (HO-3) premium, 2022 (NAIC data)accessed Oct 23, 2026
Checked Oct 23, 2026. $320,000 borrowed at 6.5% for 30 years: this calculator gives $2,022.62 a month in principal and interest, and =PMT(6.5%/12; 360; -320000) in LibreOffice Calc (the same PMT function as Excel and Google Sheets) returns 2,022.62. At this week's Freddie Mac average of 7.32% both give $2,198.18.
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Home price on $120k by interest rate
| Example rate (30-yr, 20% down) | Max home price | Loan amount | Principal & interest |
|---|---|---|---|
| 5.5% | $501,000 | $401,000 | $2,277 |
| 6% | $478,000 | $383,000 | $2,295 |
| 7.32% | $425,000 | $340,000 | $2,336 |
| 7% | $437,000 | $350,000 | $2,327 |
| 7.5% | $419,000 | $335,000 | $2,341 |
Other debts lower the budget
Lenders also check the back-end ratio: all monthly debt payments, housing included, of about 36% of gross income (some programs allow more). On $120,000, 36% is $3,600 a month. Once car, student-loan and card payments exceed $800 a month, they start cutting into the housing budget.
| Other monthly debts | Housing budget | Max home price at 7.32% |
|---|---|---|
| $0 | $2,800 | $425,000 |
| $400 | $2,800 | $425,000 |
| $800 | $2,800 | $425,000 |
| $1,200 | $2,400 | $361,000 |
Down payment changes the price
| Down payment | Max home price at 7.32% | Cash needed |
|---|---|---|
| 10% | $383,000 | $38,000 |
| 20% | $425,000 | $85,000 |
| 25% | $450,000 | $112,000 |
10% down usually also means paying PMI, which is not included here and lowers the price further.
How the estimate works
Monthly budget = $120,000 × 28% ÷ 12 = $2,800.00. Subtract insurance ($1,569 ÷ 12 = $130.75). The rest covers principal and interest on 80% of the price plus property tax at 0.94% of the price a year. Solving for price gives about $425,123. Insurance is the 2022 national average HO-3 premium from NAIC data, as published by the Insurance Information Institute; property tax is the US median effective rate from Census ACS data. Your ZIP code can move both a lot.
What the rule leaves out
The 28% rule uses gross pay, so it ignores taxes, retirement saving, childcare and maintenance (often budgeted at about 1% of the home’s value a year). Many buyers stay well below the maximum.
Rates in the tables are a range for comparison, not current market quotes. Payments are principal and interest only unless stated.
Related
Frequently asked questions
How much house can I afford making $120k?
About $425,000 with 20% down at 7.32% on a 30-year loan, using the 28% rule and average tax and insurance, with no other debts.
What monthly mortgage payment can I afford on $120k?
About $2,800 a month including taxes and insurance under the 28% rule.
How much house can I afford on $120k at 7%?
About $437,000 with 20% down.
What is the 28/36 rule?
Spend no more than 28% of gross monthly income on housing and no more than 36% on all debt payments combined.