How Much Home Can You Afford With a 7% Mortgage Rate?

Mortgage rates aren’t what they used to be, and if you’ve been keeping an eye on the housing market, you’ve probably noticed that 7% seems to be the new normal.

For many first-time homebuyers, that number raises one big question: How much house can I afford?

This guide will break down how mortgage rates affect your budget, explain the formulas lenders use, and give you smart strategies to stretch your buying power, even when interest rates are high. You’ll get real examples, expert-backed tips, and practical context to help you move forward with confidence.

In this article (Skip to...)

• Why rates matter for affordability
• The 28/36 lending rule 
• What can you afford at a 7% rate?
• How to increase affordability
• Should you wait or buy now?

Why mortgage rates matter for affordability

When mortgage rates go up, your monthly payment does too—and that limits the loan size you can qualify for. 

It’s not just a small bump. In 2020, the average 30-year fixed mortgage rate was around 3.10%. In January 2021, 30-year rates hit an all-time low of 2.65%. 

The jump from 3% to 7% can reduce your home-buying budget by tens of thousands of dollars.

Here’s a quick comparison:

- At 3%, a $300,000 loan would cost about $1,265/month (principal and interest).

- At 7%, that same loan costs around $1,995/month.

That’s a $730 difference each month. Over the life of the loan, that adds up to nearly $263,000 more in interest paid.

Higher rates also mean you may need to settle for a smaller home, put more money down, or consider alternative loan programs to stay within budget.

The 28/36 rule: a simple formula lenders use

Lenders often follow the "28/36 rule" to help prevent buyers from taking on more than they can afford. Here’s how that rule applies to qualifying for a home loan.

- Up to 28% of your gross monthly income can go toward housing (mortgage, taxes, insurance).

- Up to 36% of your gross monthly income can go toward all debts, including your mortgage.

For example, if you earn $6,000/month before taxes:

- Most lenders want you to spend no more than $1,680 on housing.

- And, your total monthly debts (including housing, car loans, student loans, etc.) should stay under $2,160.

This rule isn't set in stone. Some conventional loans allow you to go up to 50% debt-to-income (DTI) instead of 36%.

FHA loans often allow higher ratios, and VA loans don’t have a strict DTI cap. But most lenders will want to see that you can afford your monthly payments without stretching your budget too thin.

What can you afford at a 7% interest rate?

Let’s walk through some affordability examples based on different income levels. These estimates assume a 30-year fixed mortgage, a fixed rate of 7%, $300/month for property taxes and insurance, and different down payment scenarios.

How much home can you afford making $60,000 a year?

Gross monthly income: $5,000 ($60,000/12 months)

Max housing budget (28% rule): ~$1,400

Estimated home price you can afford:

5% down: ~$174,000

10% down: ~$184,000

20% down: ~$207,000

Down payment assistance programs can make a big difference at this income level. Look for entry-level homes, condos, or even manufactured homes in lower-cost areas. Also, VA loans (if eligible) or USDA loans for rural areas may help.

How much home can you afford making $100,000 a year?

Gross monthly income: $8,333 ($100,000/12 months)

Max housing budget (28% rule): ~$2,333

Estimated home price you can afford:

5% down: ~$322,000

10% down: ~$340,000

20% down: ~$382,000

With this income, you’ll have more room to explore mid-range homes in suburban markets. Your buying power can also increase significantly with a strong credit score or if you carry little additional debt.

How much home can you afford making $150,000 a year?

Gross monthly income: $12,500 ($150,000/12 months)

Max housing budget (28% rule): ~$3,500

Estimated home price you can afford:

5% down: ~$506,000

10% down: ~$534,000

20% down: ~$601,000

You may qualify for luxury homes, new builds, or properties in competitive metro areas. Consider putting more down at this level to avoid mortgage insurance and reduce your long-term interest costs.

How to increase affordability in a high-rate market

Higher rates don’t have to be a dealbreaker. Here are some proven ways to make homeownership more affordable:

1. Negotiate a 2-1 buydown

This temporary rate buydown lowers your mortgage rate by 2% in the first year and 1% in the second year. The seller or builder often pays for it and can ease the transition into full mortgage payments.

2. Tap into down payment assistance

Many state and local programs offer down payment assistance in the form of grants or forgivable loans to help with your home purchase. These can reduce your upfront costs and help you qualify for a home more easily.

3. Improve your credit

Raising your credit score can unlock better interest rates and loan terms. Even boosting your score by 20 points could mean thousands saved in interest over the life of your loan.

4. Team up with a co-borrower

Buying a home with a co-buyer—like a spouse, partner, relative, or friend—can boost your combined income and improve your chances of qualifying for a larger loan.

5. Explore loan alternatives

FHA loans require just 3.5% down. VA loans (for eligible veterans and service members) offer zero-down financing with no PMI. USDA loans serve rural and suburban areas with low- to moderate-income guidelines.

Should you wait or buy now at 7%?

This is one of the most common questions buyers face right now. There’s no perfect answer, but here’s how to think it through:

Reasons to postpone buying a home

• Rates could fall in the next 12–24 months.
• You might save more for a down payment.
• More inventory could come to market, offering better choices.

Reasons to buy a home now

• Home prices are still rising in many markets.
• You can start building equity immediately.
• You may refinance later if rates drop.

There’s a saying in real estate: "Marry the home, date the rate." If you find the right home that fits your budget, you may be able to refinance later. But finding the right home at the right price doesn’t always come around twice.

The bottom line on affording a home with a 7% rate

Buying a home at a 7% interest rate takes a bit more planning and creativity, but it’s still absolutely possible. The first step is understanding how much house you can afford—and how lenders evaluate your finances.

Start by using the 28/36 rule to build a realistic budget. Look at home buyer grant programs that can help you save money. And connect with a loan officer who can help you walk through the numbers.