How Much House Can You Afford?

Debt-to-income (DTI) compares monthly debt payments to gross monthly income. Lenders often talk about two views:

• Front-end (housing) DTI — proposed housing payment ÷ gross monthly income
• Back-end (total) DTI — (housing + other debts) ÷ gross monthly income

Common rule-of-thumb bands you will hear: housing around 28% of gross and total debts around 36%, with many programs allowing higher back-end ratios (sometimes into the low-to-mid 40s) depending on credit, reserves, and loan type. Your offer may be stricter or looser.

Worked income example

Gross household income $96,000/year → $8,000/month. At 28% front-end, target housing ≈ $2,240/month (PITI-style total, not P&I alone). At 36% back-end, total debts including housing ≈ $2,880. If car + student + minimum credit cards already take $640, room left for housing under that 36% cap is 2,880 − 640 = $2,240 — same as the front-end in this tidy example; real files often bind on one ratio or the other.

Convert salary to monthly gross carefully (salary ÷ 12, or hourly × hours × 52 ÷ 12). The free salary calculator and our salary guide help when pay is hourly or includes different pay frequencies.

Affordability tools need honest inputs. Inflated income or ignored debts produces a fantasy max price.

Income

• Base salary/wages (gross)
• Documented bonuses, overtime, or commissions when stable and allowable
• Co-borrower income if you are buying together

Self-employment and variable pay often average over 1–2 years in real underwriting. For a first sketch, use a conservative recurring number you can document.

Debts that usually count

• Auto loans, student loans, personal loans
• Credit card minimums as reported
• Other mortgages or court-ordered payments when applicable

Utilities, groceries, and childcare are not classic DTI line items but they still hit cash flow. A payment that clears DTI can still wreck your monthly budget if those costs are high.

For non-mortgage installment math, see the free loan calculator and loan payment guide when you are modeling a car or personal loan that will sit beside the mortgage.

Once you know a maximum monthly housing budget (from DTI or personal comfort), reverse the mortgage math: find the loan principal that produces that P&I at your rate and term, then add the down payment to get max purchase price — after carving room for taxes, insurance, and PMI if needed.

Conceptual steps

1. Set max total housing payment (e.g. $2,200/month).
2. Subtract estimated monthly tax, insurance, HOA, and PMI → remaining for principal & interest.
3. Solve for loan amount P given rate, term, and that P&I cap (amortization formula inverted, or use a tool).
4. Max price ≈ loan amount + down payment cash (before closing costs).

Illustrative sketch

Suppose after tax/insurance estimates you have $1,800/month for P&I, 30-year fixed at 6.5%. That payment supports on the order of roughly $280,000–$290,000 financed (order of magnitude — always compute exactly). With 10% down, max price is about loan ÷ 0.90; with 20% down, loan ÷ 0.80. Larger down payment → higher price for the same loan, or the same price with a smaller loan and payment.

Forward payment checks (price → payment) live in the free mortgage calculator and our monthly mortgage payment guide. Affordability tools run the reverse direction: budget → max price.

Closing costs (often roughly 2–5% of price, highly variable) are not part of the amortized loan unless you roll them in. A $350,000 “max price” can still require tens of thousands in cash beyond the down payment. Build that into the plan before you tour at the absolute ceiling.

Down payment does three jobs at once: it lowers the loan balance, can remove or reduce PMI, and sets how much cash you need at closing (plus closing costs).

Down payment	Loan share	Typical side effects
3–5%	Very high LTV	Lower cash in; likely PMI; tighter payment for same price
10%	High LTV	Middle path; PMI often still applies
20%+	Lower LTV	Often no PMI; stronger equity day one

Same budget, different down payment

If your max loan is $300,000 at your payment cap: 5% down → price ≈ $300,000 ÷ 0.95 ≈ $316,000. 20% down → price ≈ $300,000 ÷ 0.80 = $375,000. Cash required jumps from about $16,000 to $75,000 before closing costs — affordability is not only monthly.

Do not empty reserves

Maxing price with every dollar of savings can leave you house-rich and fragile. Keep emergency funds and closing costs outside the “all-in” down payment fantasy.

Lenders care about full housing cost, often called PITI: principal, interest, taxes, and insurance (plus HOA/PMI when relevant). Looking only at principal and interest overstates what you can buy in high-tax or high-insurance areas.

Property taxes

Often estimated as a percentage of home value per year (varies widely by location — under 1% to well over 2% in some places). Monthly tax escrow ≈ annual tax ÷ 12. A $400,000 home at 1.2% tax → $4,800/year → $400/month before any local quirks.

Homeowners insurance

Depends on rebuild cost, location, deductible, and coverage. Use a local quote range, not a national guess, when you are close to an offer.

PMI / mortgage insurance

Common when down payment is under 20% on conventional loans. FHA uses its own mortgage insurance structure. Treat it as real monthly cost until you can remove or refinance out of it.

When rates drop later, refinancing can change payment and PMI status — see the free refinance calculator and refinance guide for break-even thinking, not as day-one affordability.

HOA dues are easy to undercount in condo and planned-community searches. A $350/month HOA is $4,200/year — equivalent to a large principal reduction in what payment you can support. Always subtract HOA from the housing budget before you invert payment into max price.

Enter income, monthly debts, down payment, rate, term, and tax/insurance assumptions. Read max home price and estimated payment.

1. Open the free mortgage affordability calculator.
2. Enter gross household income (consistent monthly basis).
3. Enter monthly debt payments that show on credit reports.
4. Set target DTI or use the tool’s default guidance band.
5. Enter expected interest rate and loan term.
6. Enter down payment amount or percent and tax/insurance estimates.
7. Read maximum home price and payment breakdown.
8. Stress-test with +0.5%–1% rate and higher tax/insurance so the budget still works.

Personal vs lender max

Run one scenario at a “sleep well” payment (for example 25% of gross) and one at the higher DTI a lender might allow. Buy for the lower number if the higher one only works on paper.

The expensive mistakes are usually cash-flow and cash-to-close, not algebra.

• Using net pay as if it were gross (or the reverse) when applying DTI rules
• Ignoring taxes, insurance, HOA, and PMI when shopping list prices
• Forgetting maintenance — 1% of home value per year is a rough planning heuristic some owners use
• Stretching to the full approval amount with no buffer for rate lock changes or repairs
• Leaving no cash after down payment for closing costs, moving, and emergencies
• Counting unstable overtime as permanent income before underwriting will

This is educational, not lending, tax, or financial advice. Final numbers come from lenders, disclosures, and local quotes.