How much house can I afford?
Lenders decide how much you can borrow mainly from your debt-to-income ratio (DTI): your monthly debt payments divided by your gross (before-tax) monthly income. This calculator works backward from those limits to the highest home price whose full monthly cost fits.
There are two ratios:
- Front-end ratio: your total housing payment (mortgage principal and interest, property tax, homeowners insurance, PMI and HOA dues) as a share of income.
- Back-end ratio: housing plus every other monthly debt payment (car loans, student loans, credit card minimums, personal loans) as a share of income.
Whichever ratio is tighter sets your maximum. If you carry a lot of other debt, the back-end ratio usually decides; paying off a car loan can raise your budget more than a raise would.
Which guideline should I use?
| Guideline | Housing limit | Total debt limit | When it applies |
|---|---|---|---|
| Comfortable | 28% | 36% | The classic rule of thumb; leaves room for saving and surprises |
| FHA | 31% | 43% | Standard FHA guideline; lenders can approve higher with compensating factors |
| Lender maximum | none | 50% | Roughly the ceiling for conventional loans approved through automated underwriting |
Being approved for a loan and being comfortable with the payment are different things. Lenders look at gross income and don't know about your childcare, retirement savings or travel plans. Many people find the comfortable 28/36 guideline, or lower, leaves enough room in the budget.
What goes into the monthly payment
- Principal and interest on the loan (home price minus your down payment).
- Property tax, often around 1% of the home's value a year, but ranging from under 0.5% to over 2% depending on where you live. Check the county's rate for homes you're considering.
- Homeowners insurance, which varies widely by state and by risk from storms, wildfire and flooding.
- PMI (private mortgage insurance) if you put less than 20% down on a conventional loan, typically about 0.3% to 1.5% of the loan a year depending on your credit score and down payment. It can usually be removed once you reach 20% equity.
- HOA dues for condos and many newer neighborhoods.
Ways to afford more (or spend less)
- Pay down other debts to improve your back-end ratio.
- Save a bigger down payment. Reaching 20% down removes PMI as well as shrinking the loan.
- Shop your mortgage rate. The table above shows how much a half-point changes your budget; getting quotes from several lenders on the same day is one of the easiest ways to save.
- Look at the full cost of a home, not just the price. A lower-priced home with high HOA dues or property taxes can cost more each month.
Remember to keep cash for closing costs (often 2% to 5% of the price), moving, and an emergency fund, beyond the down payment. Once you have a price in mind, the mortgage calculator shows the full amortization schedule, and the rent vs. buy calculator shows whether buying beats renting for how long you plan to stay.