Home Affordability Calculator

How Lenders Actually Decide What You Can Borrow

Mortgage lenders do not start with the house. They start with your income and work out how much monthly payment your finances can absorb — then work backwards to a price. This calculator does the same thing, using the two debt-to-income ratios every lender applies.

The front-end ratio (housing)

Maximum housing payment = Gross monthly income × 28%

The first test caps your total housing payment at a share of your gross monthly income — traditionally 28%. On a $100,000 salary, that is $8,333 a month gross, so housing is capped at about $2,333 a month. Crucially, that ceiling covers the whole housing cost, not just the mortgage.

The back-end ratio (everything)

Maximum housing payment = (Gross monthly income × 36%) − existing debts

The second test caps housing plus every other debt payment — car loans, student loans, card minimums. At 36% on that same income, all debt is capped at $3,000 a month. Carry $500 of other payments and only $2,500 remains for housing.

The lower of the two wins. The calculator tells you which one is binding, because that determines what actually helps. If the back-end ratio is your limit, paying off a car loan raises your budget immediately. If the front-end ratio binds, clearing debt changes nothing — only more income, a bigger deposit or a lower rate will move it.

PITI: The Payment Is Bigger Than the Mortgage

The single most common mistake in home budgeting is comparing a mortgage payment to rent. A mortgage payment is not the cost of owning. Lenders measure PITI, and so should you:

• P & I — principal and interest. The mortgage itself, and usually the smallest surprise.
• T — property taxes. Typically 0.5% to 2.5% of the home's value every year, depending where you live. On a $400,000 home at 1.2%, that is $400 a month before you have paid a penny of mortgage.
• I — home insurance. Required by every lender. Budget $1,200–$3,000 a year, more in areas exposed to storms, flood or wildfire.
• PMI — private mortgage insurance. Charged when your deposit is under 20%. It protects the lender, not you, and typically costs 0.3%–1.5% of the loan each year.
• HOA or service charges. Condos and managed developments add a monthly fee that lenders count in full against your ratios.

Taxes and insurance frequently add 20–30% on top of the mortgage payment. That is the gap between "I can afford a $2,300 mortgage" and what a lender will actually approve.

Why Rates Move Your Budget More Than Prices Do

This is the part that catches buyers out, and it is why the rate sensitivity table above is worth studying before you shop. Your budget is a monthly payment, so the interest rate does not just change what you pay — it changes how much house that payment buys.

Every one percentage point of rate movement changes how much you can borrow by roughly 8%. Someone who could borrow $295,000 at 6% can borrow about $270,000 at 7% — same income, same deposit, nothing about their finances changed. The effect on the price you can pay is a little gentler, because your deposit does not shrink when rates rise: in this calculator's default scenario, that same one-point move costs about 6.7% of the purchase price.

The practical version: when rates fall, prices tend to rise as everyone's budget expands at once. When rates rise, your budget shrinks immediately but prices adjust slowly. Waiting for a lower rate often means competing against buyers whose budgets grew alongside yours.

Five Ways to Raise What You Can Afford

1. Clear a debt with a big monthly payment. While the total-debt ratio is your binding limit, every $100 of monthly payment you eliminate adds roughly $13,000 of buying power at current rates — so clearing a $400 car payment is worth about $50,000. The catch: the benefit stops dead once the housing ratio takes over as the binding constraint. The calculator tells you which one is limiting you, so you know whether this lever still works.
2. Reach 20% down. This removes PMI entirely, which frees the whole PMI amount for principal and interest — and it usually unlocks a better rate tier at the same time.
3. Shop the rate, not just the lender. Comparing three or more lenders is routine and a quarter-point difference is worth tens of thousands in buying power. Compare APR, which includes fees, rather than the advertised rate.
4. Look at property tax before you fall in love. Two towns twenty minutes apart can differ by a full percentage point of annual tax. On a $400,000 home that is $333 a month — enough to change which houses you can even consider.
5. Consider a longer term carefully. Stretching from 15 to 30 years lowers the payment and raises the price you qualify for, but hugely increases total interest. Use our loan payment calculator to see the full cost before deciding.

What This Calculator Deliberately Leaves Out

Being approved for an amount and being able to live on it are different questions. Lenders test your ratios; they do not test your life. Budget separately for:

• Maintenance and repairs — the standard planning figure is about 1% of the home's value per year. On a $400,000 home that is $333 a month you will not see on any mortgage statement.
• Closing costs — commonly 2%–5% of the purchase price, payable on top of your deposit.
• Moving, furniture and immediate repairs — reliably underestimated, reliably expensive.
• Utilities — usually higher than in a rental, particularly if you are moving to more space.
• Your actual take-home pay. Every ratio here uses gross income, which is how lenders work. Check the payment against what actually reaches your account using our salary calculator.

A sensible discipline: take the maximum this calculator produces and shop at 80–85% of it. The gap is what keeps a broken boiler, a job change or a rate reset from becoming a crisis.

Frequently Asked Questions

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Disclaimer: This calculator provides estimates for planning and comparison and is not a mortgage offer, a pre-approval, or financial advice. Lenders apply their own criteria including credit score, employment history, deposit source and property type, and results will differ. Figures exclude closing costs, maintenance and utilities. Always speak to a qualified mortgage adviser or lender before making an offer on a property.