Home Affordability Calculator
Formula and Calculation Method
Standard lender Debt-to-Income (DTI) qualification limits:
Front-End Ratio (Housing DTI ≤ 28%) = (PITI Monthly Payment ÷ Gross Monthly Income)Back-End Ratio (Total DTI ≤ 36% - 43%) = [(PITI + Other Debts) ÷ Gross Monthly Income]Max PITI Payment = min(Gross Monthly Income × 0.28, Gross Monthly Income × 0.36 - Other Debts)
Worked Example and Step-by-Step Calculation
- Gross Annual Income: $120,000 ($10,000 / month)
- Monthly Debt Obligations: $600 (car loan + student loan)
- Available Down Payment: $60,000
- Mortgage Rate: 6.54% (30-yr fixed reference)
- Target Back-End DTI: 36%
1. Max Total Monthly Debt (36% DTI) = $10,000 × 0.36 = $3,600
2. Max Monthly Housing Payment (PITI) = $3,600 - $600 existing debt = $3,000
3. Front-end 28% check: $10,000 × 0.28 = $2,800. Lender caps PITI at $2,800.
4. Subtract taxes ($350) + insurance ($120) = $2,330 available for Principal & Interest.
5. Maximum loan supported at 6.54% for 30 years = $367,000
6. Maximum Home Purchase Price = $367,000 loan + $60,000 down payment = $427,000
How to Use the Home Affordability Calculator
- Enter your annual household gross pre-tax income.
- Enter your total monthly debt payments (auto loans, student debt, credit card minimums).
- Input the cash savings you have reserved strictly for your down payment.
- Adjust the interest rate and property tax rate for your target location.
- View your recommended conservative, moderate, and aggressive home price ceilings.
Common Mistakes, Limitations & Practical Guidance
- Lender qualification does not account for personal lifestyle priorities, daycare costs, or personal savings targets.
- Closing costs typically require an additional 2% to 5% in cash beyond your down payment funds.
Frequently Asked Questions About Home Affordability Calculator
How do lenders determine house affordability by salary?
Lenders apply the 28/36 rule: your monthly mortgage and escrow costs should not exceed 28% of your gross monthly salary, and total debt payments (including car notes, student loans, and credit cards) must stay under 36%.
What is the 28/36 rule in mortgage qualification?
The 28/36 rule is a standard underwriting benchmark used by mortgage lenders. It stipulates that your housing costs (PITI) should not exceed 28% of your gross monthly income (front-end ratio), and total debt obligations including housing should not exceed 36% (back-end ratio).
What is the difference between what I can afford and what a bank approves?
Banks frequently approve borrowers up to 43% to 50% back-end DTI limits, which can leave you "house poor." A prudent affordability estimate focuses on 28% to 33% DTI so you still have cash to invest, travel, and cover unexpected home maintenance.
How do existing monthly debts affect my house buying budget?
Every $100 in existing monthly debt payments (like a car loan or student loan) reduces the mortgage amount you qualify for by approximately $15,000 to $17,000 at current mortgage rates.
How much should I reserve for closing costs and moving?
In addition to your down payment, expect closing costs (lender origination fees, appraisal, title insurance, escrow reserves) to total 2% to 4% of the purchase price, plus an emergency reserve of 1% to 2% for immediate repairs.
Should I use the Mortgage Calculator or Home Affordability Calculator?
Use this Home Affordability Calculator if you do not know your budget yet and want to find your price cap. Once you find a specific home price, use our Mortgage Calculator to analyze detailed payment breakdowns.