Mortgage Affordability Calculator

How much house can you afford?

Determining how much house you can afford requires balancing what lenders will approve against what fits comfortably in your budget. Just because a bank approves you for $500,000 doesn't mean you should spend that much.

This calculator uses the 28/36 rule—a widely accepted guideline for sustainable homeownership—to estimate your maximum affordable home price.

The 28/36 rule explained

The 28/36 rule sets two debt-to-income (DTI) ratio limits:

Front-end ratio (28%)

Your housing costs should not exceed 28% of your gross monthly income:

$$\frac{\text{Housing Payment}}{\text{Gross Monthly Income}} \leq 28\%$$

Housing costs include:

• Principal and interest (mortgage payment)
• Property taxes
• Homeowners insurance
• HOA fees (if applicable)
• PMI (if down payment under 20%)

Back-end ratio (36%)

Your total monthly debt should not exceed 36% of your gross monthly income:

$$\frac{\text{Housing Payment} + \text{Other Debts}}{\text{Gross Monthly Income}} \leq 36\%$$

Other debts include:

• Car loans
• Student loans
• Credit card minimum payments
• Personal loans
• Child support/alimony

Example calculation

For someone earning $100,000 annually ($8,333/month) with $500 in monthly debts:

$$\begin{aligned} \text{Max housing (28\%)} &= \$8{,}333 \times 0.28 = \$2{,}333 \\[0.5em] \text{Max total debt (36\%)} &= \$8{,}333 \times 0.36 = \$3{,}000 \\[0.5em] \text{Max housing from back-end} &= \$3{,}000 - \$500 = \$2{,}500 \end{aligned}$$

The more restrictive limit ($2,333) determines maximum housing payment.

What lenders actually require

While 28/36 is the traditional guideline, lenders have varying requirements:

Loan Type	Front-End Max	Back-End Max
Conventional	28%	36-43%
FHA	31%	43%
VA	No limit	41%
USDA	29%	41%

Qualified Mortgage (QM) rules

For most mortgages, the back-end ratio cannot exceed 43%. This is the maximum for "Qualified Mortgages" under federal regulations.

Compensating factors

Lenders may approve higher ratios with:

• Excellent credit (760+)
• Large cash reserves (6+ months expenses)
• Significant down payment (20%+)
• Stable employment history
• Expected income growth

Components of your housing payment

Principal and interest

The core mortgage payment. Use the standard amortization formula:

$$M = P \times \frac{r(1+r)^n}{(1+r)^n - 1}$$

Where:

• M = Monthly payment
• P = Principal (loan amount)
• r = Monthly interest rate
• n = Number of payments

Property taxes

Typically 0.5%-2.5% of home value annually, paid monthly into escrow. High-tax areas like New Jersey exceed 2%, while low-tax states like Hawaii are under 0.5%.

Homeowners insurance

Usually $1,000-$3,000 annually, depending on home value, location, and coverage. Flood zones or disaster-prone areas cost significantly more.

HOA fees

Condos and planned communities charge monthly fees for shared amenities and maintenance. These can range from $100 to$1,000+ per month.

Private Mortgage Insurance (PMI)

Required when down payment is under 20%. Typically 0.5%-1% of loan amount annually. PMI can be removed once you reach 20% equity.

The impact of interest rates

Interest rates dramatically affect affordability. For a 30-year mortgage:

Interest Rate	Monthly P&I on $400K
5%	$2,147
6%	$2,398
7%	$2,661
8%	$2,935

A 1% rate increase reduces buying power by approximately 10%.

Down payment considerations

20% down

• Avoids PMI (saves $100-300/month)
• Lower monthly payments
• Better interest rates
• Stronger offers in competitive markets

Less than 20% down

• Buy sooner with less savings
• PMI adds to monthly payment
• Higher loan amount means more interest
• May face stricter approval requirements

Down payment assistance

Many programs help first-time buyers:

• FHA loans (3.5% minimum)
• VA loans (0% down for veterans)
• State/local assistance programs
• Employer assistance programs

Hidden costs of homeownership

The calculator estimates core costs, but budget for:

Closing costs

Typically 2-5% of home price. Includes:

• Loan origination fees
• Appraisal and inspection
• Title insurance
• Attorney fees
• Prepaid taxes and insurance

Maintenance

Budget 1-2% of home value annually for repairs and upkeep. A $400,000 home needs$4,000-$8,000 yearly for maintenance.

Utilities

Often higher than renting. Budget for:

• Electricity/gas
• Water/sewer
• Trash/recycling
• Internet/cable

Furnishing

Empty rooms need furniture. A typical home requires $10,000-$30,000 to furnish.

Conservative vs. stretch budgets

Conservative approach

Spend well under 28% of income on housing. Benefits:

• Financial flexibility for other goals
• Buffer for income disruption
• Less stress from payment pressure
• Room for unexpected expenses

Stretch approach

Approaching or exceeding 28% may be acceptable if:

• Income is expected to grow
• Other debts will be paid off soon
• You have substantial savings
• Housing costs are unavoidable in your area

Location-specific considerations

High-cost areas

Cities like San Francisco, New York, and Boston often require stretching beyond 28%. Evaluate:

• Career opportunities justifying higher costs
• Long-term housing appreciation potential
• Quality of life trade-offs

Lower-cost areas

Rural and suburban areas may allow staying under 28% while getting more space. Consider:

• Commute costs if working in cities
• Appreciation potential
• Access to amenities

Getting pre-approved

Before house hunting:

1. Check your credit: Higher scores get better rates
2. Gather documentation: Pay stubs, tax returns, bank statements
3. Get pre-approved: Shows sellers you're serious
4. Compare lenders: Rates and fees vary significantly

Pre-approval gives you a realistic budget and strengthens your offers.

Using this calculator

1. Enter gross income: Household total before taxes
2. Add monthly debts: All recurring debt payments
3. Set down payment: Amount you can put down
4. Adjust rates: Current mortgage rates for your area
5. Include extras: Property taxes, insurance, HOA

The result shows your maximum affordable home price under the 28/36 rule. Use the conservative estimate for a comfortable budget, or the stretch estimate if you're willing to allocate more toward housing.

Remember: affordability isn't just about approval—it's about sustainable homeownership that supports your overall financial health.