How Much House Can You Afford?
Affordability comes down to one question: how much of your monthly income can safely go toward housing? Two benchmarks answer it — one based on housing costs alone, and one based on all your debts combined.
- Front-end ratio: Your monthly housing payment (principal, interest, taxes, insurance) as a percentage of gross monthly income. Most guidelines suggest keeping this at or below 28%.
- Back-end ratio (DTI): All monthly debt payments — housing plus car loans, student loans, and credit card minimums — as a percentage of gross monthly income. Conventional loans typically allow up to 43%, though some lenders go higher with strong credit.
This calculator applies both constraints and shows you home prices at three budgets: conservative (28/36 rule), moderate (40% back-end DTI), and maximum (43% back-end DTI). Use the conservative number as your target and the maximum as a ceiling.
The 28/36 Rule Explained
The 28/36 rule is a household name in personal finance and mortgage lending. Here's how it works in practice:
| Income | Max Housing (28%) | Max Total Debt (36%) |
|---|---|---|
| $60,000/yr ($5,000/mo) | $1,400/mo | $1,800/mo |
| $80,000/yr ($6,667/mo) | $1,867/mo | $2,400/mo |
| $100,000/yr ($8,333/mo) | $2,333/mo | $3,000/mo |
| $150,000/yr ($12,500/mo) | $3,500/mo | $4,500/mo |
If you carry $500/month in other debts (car, student loans), the 36% back-end rule leaves $2,500 for housing ($3,000 − $500 in other debts). But the 28% front-end cap of $2,333 is more restrictive — so $2,333 is the effective ceiling under the full 28/36 rule. Both constraints apply, and lenders check both.
What This Calculator Includes
The monthly payment this calculator uses includes all components of PITI:
- Principal & Interest: The core mortgage payment, calculated based on loan amount, rate, and term.
- Property taxes: Estimated from your property tax rate and the computed home price.
- Homeowner's insurance: Your estimated annual premium, spread monthly.
- PMI: If your down payment is less than 20%, private mortgage insurance is added at ~0.85% of the loan annually. This disappears once you reach 20% equity.
- HOA fees: Monthly homeowner's association dues, if applicable.
How Down Payment Affects Affordability
A larger down payment helps in two ways. First, it directly reduces your loan amount, which lowers the monthly P&I payment — allowing the same income to support a higher home price. Second, once you reach 20% down, PMI is eliminated entirely, freeing up additional monthly budget.
On a $400,000 home at 7%, the difference between 5% down ($20,000) and 20% down ($80,000) is roughly $399/month less in P&I plus $269/month in eliminated PMI — about $668/month total. At the same income, that freed-up budget meaningfully increases the home price you can qualify for.
What Lenders Actually Look At
This calculator models the DTI rules most lenders use, but approval also depends on factors not captured here:
- Credit score: Scores above 740 typically get the best rates; below 620 can mean higher rates or denial on conventional loans.
- Reserves: Lenders often require 2–6 months of mortgage payments in savings after closing.
- Loan type: FHA loans allow higher DTI (up to 57% in some cases) and lower down payments (3.5%) but require mortgage insurance for the life of the loan.
- Employment history: Two years of stable employment in the same field is a common benchmark.
Getting pre-approved by a lender is the only way to know exactly what you qualify for. Use this calculator as a planning tool to understand your budget before starting that conversation.
Frequently Asked Questions
Is 43% DTI too high?
A 43% back-end DTI is the traditional cutoff for qualified mortgages, meaning most conventional loans cap here. In practice, many lenders will go up to 45–50% for borrowers with strong credit, large reserves, or significant equity. But stretching to 43% leaves little room for emergencies, job changes, or unexpected expenses. The 36% guideline exists for good reason — it keeps housing from crowding out everything else in your budget.
Should I use my gross or net income?
Lenders always calculate DTI using gross income (before taxes). This calculator uses gross income as well. Keep in mind that take-home pay is typically 25–35% lower, so if your gross income is $100,000, your monthly take-home is roughly $5,800–$6,200 depending on your tax situation. Make sure the housing payment is genuinely manageable on your actual take-home, not just within the gross-income DTI guidelines.
What if I can't put 20% down?
Most buyers don't put 20% down — the median down payment for first-time buyers is closer to 6–8%. Options with less than 20% include conventional loans (as low as 3% down with PMI) and FHA loans (3.5% down with mortgage insurance). Both require PMI or MIP, adding cost until you build equity. This calculator estimates PMI at 0.85% of the loan annually, which is a reasonable average for conventional loans.