How Much House Can I Afford?

How this calculator works

Lenders do not start from a home price. They start from your income, work out the largest monthly payment they are willing to see, and only then ask what price that payment can carry. This calculator follows the same order, using two debt-to-income (DTI) ratios:

Front-end ratio = housing payment ÷ gross monthly income
Back-end ratio = (housing payment + all other monthly debts) ÷ gross monthly income

The housing payment is everything you pay to keep the roof: mortgage principal and interest, property tax, homeowners insurance, HOA dues and, if your down payment is under 20%, private mortgage insurance. Other debts are the minimum required payments on car loans, student loans, credit cards and any other instalment debt — not rent, utilities, phone bills or groceries.

Why lenders use both ratios

The front-end ratio asks whether the house alone is too big for your income. The back-end ratio asks whether the house plus the rest of your borrowing is too big. Each guideline sets a limit for both, such as 28% / 36%, and the calculator takes whichever produces the smaller housing payment:

• Front-end limit: gross monthly income × front-end %
• Back-end limit: gross monthly income × back-end % − other monthly debts

With little debt, the front-end limit binds. With a big car payment and student loans, the back-end limit binds, and every extra dollar of debt payment removes a dollar from the housing payment you can carry. The results panel names which ratio is setting your number.

The presets are common lender guidelines, not rules. 28/36 is the long-standing conservative rule of thumb. 36/43 reflects the higher ceilings many conventional lenders commonly use, and 31/43 the figures commonly quoted for FHA-style lending. Actual limits vary by lender, loan program, credit score and cash reserves, and some lenders look mainly at the back-end ratio. If your lender has given you its own limits, choose Custom and enter them.

How tax, insurance, HOA and PMI eat into the payment

Only the principal-and-interest part of the housing payment actually buys a house. Everything else comes off the top first. At the worked example below, the $2,800 allowed payment loses $355 to property tax, $150 to insurance and $137 to PMI before the remaining $2,158 can carry a loan. In a high-tax county, with a $300 HOA, or with expensive insurance, the same income buys a noticeably cheaper home.

Because tax and PMI depend on the price itself, there is no single formula for the maximum price. The calculator searches for it: it tries a price, sets the loan to price minus your down payment, computes principal and interest with the standard amortization formula, adds tax (price × tax rate ÷ 12), insurance, HOA and PMI (loan × PMI rate ÷ 12 when the loan is over 80% of the price), and narrows in on the highest price whose full payment stays within the limit. PMI switches off automatically once your down payment reaches 20% of the price found, which is why the answer sometimes stops exactly at a 20%-down price: one more dollar would bring PMI back and push the payment over the line.

Why “approved for” is not “comfortable”

Every ratio here is measured against gross income — before federal and state income tax, Social Security, Medicare, health premiums and retirement contributions. A housing payment that is 36% of gross income can be half of what actually reaches your bank account. The ratios also assume your income and expenses never change, and they include nothing for maintenance, which typically runs about 1% of a home’s value each year. That is why the panel shows the conservative and stretch prices side by side: the gap between them is the room a lender will give you, and the reason many buyers who were “approved” end up house poor. Check the payment against your real paycheck with the take-home pay calculator, and once you have a price in mind, the mortgage calculator shows the full amortization and when PMI drops off.

Worked example

A household earning $120,000 a year ($10,000 a month gross) pays $600 a month on a car and student loans, has $60,000 saved for a down payment, and is quoted 6.9% on a 30-year fixed loan. Property tax is 1.1% of value, insurance $1,800 a year, no HOA, and PMI 0.5% of the loan when the down payment is under 20%.

Under the conservative 28/36 guideline, the front-end limit is $2,800 (28% of $10,000) and the back-end limit is $3,000 ($3,600 minus $600 of debts), so the front-end ratio binds at $2,800. That payment supports a home of about $387,700: a $327,700 loan (84.5% LTV) costing $2,158 in principal and interest, plus $355 tax, $150 insurance and $137 PMI. The resulting ratios are 28.0% front and 34.0% back.

Under the conventional 36/43 guideline, the front-end limit rises to $3,600 and the back-end to $3,700, so the payment cap is $3,600 and the maximum price jumps to about $488,700 — a $428,700 loan at $2,823 in principal and interest, plus $448 tax, $150 insurance and $179 PMI, for ratios of 36.0% front and 42.0% back. The two guidelines differ by roughly $101,000 of house on the same income, which is exactly the range in which buyers get into trouble.

Now raise the debts to $1,500 a month — a second car and larger student loans — and keep everything else. At 28/36 the front-end limit is still $2,800, but the back-end limit falls to $2,100 ($3,600 minus $1,500), so the back-end ratio binds. The maximum price drops to $300,000, where the $60,000 down payment is exactly 20% and PMI is not charged; the payment is $2,006, and any higher price would bring PMI back and break the $2,100 limit. The extra $900 of monthly debt cost about $88,000 of house.

Tips

• Pay down or pay off small debts first. Clearing a $300 car payment raises your back-end limit by $300 a month, which at 6.9% carries roughly $45,000 more loan — usually a better return than the same cash added to the down payment.
• Aim for 20% down if it is within reach. Removing PMI frees $100–$200 a month of the payment budget for principal and interest, and the calculator shows the cliff.
• Shop the rate. One percentage point on the worked example is about $26,000–$30,000 of price at the same payment. Get several loan estimates on the same day.
• Budget from take-home pay, not gross. Run the payment against your real net paycheck and keep room for maintenance, savings and the unexpected. The full guide walks through a real household that was approved for $480,000 and bought at $295,000.
• Treat the result as a ceiling. A written pre-approval from a lender is the only number a seller will take seriously, and even that is a maximum, not a recommendation.