How lenders decide how much house you can afford
Lenders look at two ratios of your gross (before-tax) monthly income:
- Housing ratio (front-end): your full housing payment, including principal, interest, property tax, insurance, PMI and HOA, should stay under about 28% of income.
- Debt-to-income ratio (back-end): housing plus all other debt payments should stay under about 36%.
The calculator finds the largest monthly payment that meets both limits, then works backwards to the most expensive home that payment covers with your down payment and rate.
Example
With $100,000 of household income, $500 a month of other debts and $60,000 saved, the standard 28%/36% rule allows a housing payment of about $2,333 a month. At a 6.5% rate over 30 years, that points to a home of roughly $338,000. The cautious 25%/33% rule gives about $305,000, and the 31%/43% stretch rule (close to what some FHA loans allow) about $370,000.
What the lender approves isn't always what's comfortable
Lenders only look at debts on your credit report. They don't see childcare, saving for retirement, or the cost of repairs, which often run 1–2% of a home's value a year. Many buyers choose a price below their maximum so they can keep saving and handle surprises. Try the conservative setting to see that number.
Ways to afford more home
- Pay down other debts first. Every $100 of monthly debt you clear raises your housing budget under the 36% rule.
- Save a bigger down payment. Reaching 20% also removes PMI.
- Improve your credit score. A better score usually means a lower rate, which stretches the same payment further.
- Look at lower-tax areas. Property tax rates vary a lot between towns and counties.