Jeff Merrill | Sioux Falls Realtor

You’ve probably typed “how much house can I afford” into a calculator, gotten a big round number, and felt either relieved or gut-punched. Neither reaction is worth much, because those national calculators don’t know Sioux Falls.

National calculators may use rough assumptions for taxes, insurance and interest rates. For an address-specific estimate, use the current property-tax record, obtain a homeowners-insurance quote and request an official Loan Estimate from a lender. The Consumer Financial Protection Bureau explains how to compare Loan Estimates.

Let’s fix that. Here’s how affordability actually works here in the summer of 2026 — with real numbers you can check against your own paycheck.

Start with the 28/36 rule, then make it local

Lenders lean on a guideline called the 28/36 rule, and it’s a good place to start.

The idea is simple. Keep your total monthly housing payment at or under 28% of your gross (pre-tax) monthly income. Then keep all your debt payments combined — housing plus car loans, student loans, and credit card minimums — at or under 36%.

That first number, 28%, is your housing ceiling. And “housing payment” means more than principal and interest. It means the full PITI: Principal, Interest, property Taxes, and homeowners Insurance — plus mortgage insurance if you put down less than 20%.

Here’s where Sioux Falls buyers get tripped up. Two of those four letters are bigger here than the calculators assume. Our property taxes and our insurance both run above the national middle, so the same monthly payment buys you a smaller loan than it would in a low-tax, low-insurance market.

Many loan programs will let you stretch past 36% on the back end — FHA and some conventional loans approve buyers at 43% to 50% total debt. You can borrow more. Whether you should is a different question, and that’s the one worth answering before you fall in love with a listing.

Build an address-specific affordability estimate

Start with a current lender quote and the actual property. Add principal and interest, property taxes from the current record, a homeowners-insurance quote, mortgage insurance when applicable, HOA dues and a monthly maintenance reserve. Then test the payment against income, existing debts, savings goals and normal living expenses.

Rates and qualification ratios change, so request a Loan Estimate and do not treat a blog calculation as a lending quote.

The levers that move your number

Your maximum price isn’t fixed. A handful of things push it up or down, and some are in your control.

Your down payment. As the two examples show, getting to 20% erases PMI and shrinks the loan. But don’t drain your savings to get there — you still need cash for closing costs, which run 2% to 5% in Sioux Falls, plus a cushion for the first repair. If a bigger down payment leaves you with nothing, a smaller one plus PMI is the smarter play.

Down payment assistance. If cash is the wall you’re hitting, look at South Dakota Housing’s first-time buyer program. It pairs a fixed-rate first mortgage with 3% or 5% of the price as down payment help, which can be the difference between renting another year and owning now.

Your other debts. That 36% back-end ceiling is real. A $500 car payment doesn’t just cost $500 — at a 28% housing ratio, it can knock $60,000 to $75,000 off the home price you qualify for. Paying off a card or holding off on a new truck before you apply is often the fastest way to buy more house.

Property taxes you can verify. Don’t guess. Every listing’s tax bill is public through the Minnehaha or Lincoln County treasurer, and it feeds straight into your escrow. A slightly cheaper home with a much higher tax bill can carry the same monthly payment as a pricier one. For the full picture, here’s how Sioux Falls property taxes work and the owner-occupied classification that lowers them after you buy.

The insurance quote you get before closing. Because we’re in hail country, premiums vary a lot by roof age and claims history. Get a real quote early — not at the closing table — so a $3,600 policy doesn’t blow up a budget you built around $2,500.

The single best move is a full pre-approval from a local lender before you tour a thing. Not a 30-second online pre-qualification — a real one, where someone verifies your income and debts and hands you a maximum price and a monthly payment you’ve actually looked at. When you are ready to make an offer, that pre-approval is also what makes your offer credible when you find the one.

Frequently asked questions

What income do you need to buy a house in Sioux Falls?

There is no reliable citywide income requirement. It depends on price, down payment, current rate, taxes, insurance, HOA dues, credit profile and monthly debts. Ask a lender for a property-specific estimate.

How much house can I afford on my income?

Use gross income only as one input. A responsible estimate also includes debts, cash reserves, down payment, current loan pricing and the complete property payment.

What is the 28/36 rule?

Keep your total housing payment at or under 28% of gross monthly income, and all debt payments combined at or under 36%. Many loan programs allow higher back-end ratios, but 28/36 is the comfort zone that keeps you from being house-poor.

Why can affordability change quickly?

Home prices, mortgage rates, property taxes and insurance premiums can all change the monthly payment. Compare current written estimates rather than last year’s calculator result.

Should I buy at the top of my budget?

Rarely. The 28% ceiling assumes nothing goes wrong. Leave room for a new roof, a furnace, a job change, or a hail claim deductible. Buying $30,000 under your max is what keeps a home from becoming a stressor.

About Jeff Merrill: Jeff Merrill leads The Jeff Merrill Team, powered by eXp Realty, serving Sioux Falls and the surrounding South Dakota communities of Madison, Mitchell, Canistota, Brandon, Harrisburg, Tea, and beyond. Jeff helps buyers, sellers, and new agents make clear-eyed decisions with straight talk and local numbers. Reach him at 605-201-2846.