What lenders actually check
Affordability comes down to one ratio: debt-to-income, or DTI. Lenders add up your total monthly debt obligations — the proposed housing payment plus car loans, student loans, and credit card minimums — and divide by your gross monthly income.
Two versions matter. The front-end ratio counts housing alone, and the classic guideline caps it at 28%. The back-end ratio counts all debt, and the traditional limit is 36%. In practice most conventional lenders will approve up to 43%, and some government-backed programmes stretch to 50%.
This calculator works from the back-end ratio because that is what actually gates approval, and it subtracts your existing debts before computing what's left for housing.
Why most affordability calculators overstate your budget
Plenty of tools compute a maximum mortgage and stop, quietly ignoring that your monthly bill includes far more than principal and interest. Property tax and insurance are escrowed by your lender and count fully toward your DTI.
Work through the default figures here. A household earning $120,000 with $600 of existing monthly debt, using a 36% DTI, has $3,600 of total monthly debt capacity and therefore $3,000 available for housing. That $3,000 does not all go to the mortgage: about $2,425 is principal and interest, roughly $425 is property tax, and $150 is insurance.
The result is a maximum home price near $464,000 rather than the larger figure you'd get by treating the whole $3,000 as a mortgage payment. Tax rates vary enormously by location — moving from a 1.1% to a 2.2% property tax rate cuts your maximum price by tens of thousands of dollars on identical income.
The fastest ways to increase what you can afford
Paying off existing debt has a surprisingly large effect, because every dollar of monthly obligation is a dollar removed from your housing budget. In the default scenario, clearing that $600 of monthly debt payments lifts the maximum price from about $464,000 to roughly $547,000 — an $83,000 increase from eliminating $600 a month.
Raising your DTI ceiling has a similar effect but is not free. Moving from 28% to 43% takes the same household from about $353,000 to about $560,000. That is a genuine option, not a trick — but a 43% DTI means nearly half your gross income is committed before you have bought groceries.
A larger down payment increases your price ceiling roughly dollar for dollar, and crossing 20% removes private mortgage insurance, freeing up more of your monthly budget for the loan itself.
What the maximum leaves out
The number this calculator produces is a ceiling, not a recommendation. It excludes private mortgage insurance, which applies below a 20% down payment and typically runs 0.5–1.5% of the loan annually. It excludes HOA dues, which can exceed $500 a month in some developments. And it excludes maintenance, which owners commonly underestimate — a widely used planning figure is 1% of the home's value per year.
It also says nothing about the rest of your life. A DTI-maximising purchase leaves no room for retirement contributions, childcare, or a job loss. Borrowing the maximum a lender will approve is a decision to be house-rich and cash-poor.
A more useful way to read the output: treat the 28% figure as comfortable, the 36% figure as a stretch, and anything above 43% as a plan that requires everything to go right.
Frequently asked questions
- What DTI ratio should I actually use?
- 36% is the traditional guideline and a reasonable default. Use 28% if you want room for aggressive retirement saving or expect childcare costs. Only go to 43% if your income is stable and you have a substantial emergency fund.
- Does my down payment affect what I can afford?
- Yes, in two ways. It adds directly to the price you can support, and crossing 20% eliminates mortgage insurance, which frees up monthly budget for the loan itself.
- Should I include my spouse's income?
- Include it only if they will be on the mortgage application. If they are, the lender also counts their debts against your ratio.
- Why is my pre-approval higher than this figure?
- Lenders often approve at 43–50% DTI, well above the 36% guideline, and pre-approval reflects the maximum they will lend rather than what is comfortable. The gap between those two numbers is where most people get into trouble.