How lenders decide what you can afford
Lenders look at your debt-to-income (DTI) ratio: how much of your gross monthly income goes to debt. The classic limits are 28% for the housing payment alone (the front-end ratio) and 36% for housing plus all other debts (the back-end ratio). Whichever limit is tighter sets your maximum payment. This calculator then finds the highest home price whose full monthly payment — principal, interest, property tax, insurance, PMI and HOA — fits under it.
Worked example
A household earning $100,000 a year makes $8,333 a month. 28% of that is $2,333 for housing; 36% is $3,000 for all debts, and with a $500 car payment that leaves $2,500 — so the 28% housing limit of $2,333 is the tighter one.
With $60,000 saved, a 6.5% 30-year rate, 1.1% property tax and $1,800 a year of insurance, that budget supports a home of about $338,000: a $278,000 loan at $1,757 a month, plus $310 tax, $150 insurance and about $116 PMI (because the down payment is under 20%).
Ways to afford more house
- Pay down a car loan or card balance — every $100 a month of debt removed raises your back-end budget by $100.
- Save toward 20% down to drop PMI.
- Improve your credit score before applying; a lower rate raises the price your payment supports.
- Compare areas by property tax rate — it can swing the payment by hundreds a month.
What this includes & its limits
- Uses DTI limits you can adjust, a fixed-rate loan, and PMI of 0.5% a year when you put down less than 20%.
- Does not include closing costs, cash reserves lenders may require, FHA/VA loan rules, or your credit score.
- An estimate — a lender's pre-approval is the real answer.
Frequently asked questions
For estimates only — not a loan offer or financial advice.