How this affordability calculator works
Lenders do not ask what price you like. They ask what monthly payment your income can carry, then turn that payment into a loan. This calculator does the same thing in three steps:
- Set a housing budget from your gross monthly income using two debt-to-income (DTI) limits.
- Subtract the costs that are not the loan: property tax, home insurance, HOA dues and PMI.
- Turn what is left into a loan and a price, adding your down payment on top.
Because tax and PMI depend on the price itself, step 3 is solved by trial: the calculator searches for the highest price whose full payment exactly fits your budget.
The formula
Front-end limit = front % × monthly income
Back-end limit = back % × monthly income − other monthly debts
Housing budget = the smaller of the two
Find the price P where: P&I(P − down) + P × tax % ÷ 12 + insurance + HOA + PMI = housing budget
P&I is the standard mortgage payment, L × r ÷ (1 − (1 + r)^−n), with r = the yearly rate ÷ 12 and n = the number of monthly payments.
The 28/36 rule and other lender limits
The front-end ratio is your total housing payment divided by gross monthly income. The back-end ratio adds every other debt payment. Different loan programs use different limits:
| Rule | Housing (front-end) | All debts (back-end) | Who uses it |
|---|---|---|---|
| Conventional 28/36 | 28% | 36% | Classic conventional guideline; Fannie Mae’s manual limit is 36% |
| Stretch 36/43 | 36% | 43% | Strong-credit borrowers; 43% was the old Qualified Mortgage cap |
| FHA 31/43 | 31% | 43% | FHA’s standard guideline, often exceeded with compensating factors |
| VA 41% | No set limit | 41% | VA guideline, alongside a residual income test |
| Automated approval | Varies | Up to 50% | Fannie Mae Desktop Underwriter maximum |
The calculator uses whichever limit is tighter. For most people with little debt, the front-end limit decides. With a big car payment or student loans, the back-end limit takes over.
Worked example 1: $100,000 income, 28/36 rule
A household earns $100,000 a year, pays $500 a month on a car loan, and has $40,000 for a down payment. The rate is 6.5% for 30 years, property tax is 1.1% and insurance is $1,500 a year. PMI is 0.5%.
- Monthly income = $8,333.33
- Front-end limit = 28% × $8,333.33 = $2,333.33
- Back-end limit = 36% × $8,333.33 − $500 = $2,500.00
- The front-end limit is lower, so the housing budget is $2,333.33
The highest price that fits is $323,729. Here is how that budget breaks down:
| Part of the payment | Monthly |
|---|---|
| Principal and interest on a $283,729 loan | $1,793.36 |
| Property tax (1.1% of the price) | $296.75 |
| Home insurance | $125.00 |
| PMI (down payment is 12.4%) | $118.22 |
| Total | $2,333.33 |
The back-end ratio is ($2,333.33 + $500) ÷ $8,333.33 = 34%, safely under 36%.
Worked example 2: same income, bigger debts
Now the household has $1,500 a month of other debts: a car loan, student loans and card minimums.
- Front-end limit = $2,333.33 (unchanged)
- Back-end limit = 36% × $8,333.33 − $1,500 = $1,500.00
The back-end limit binds, and the budget drops by more than a third. The affordable price falls to $214,854, about $109,000 less. Paying off a $400-a-month car loan before applying is often the fastest way to raise what you can borrow.
Worked example 3: comparing the rules
The first household again, with only the rule changed:
| Rule | Housing budget | Affordable price |
|---|---|---|
| Conventional 28/36 | $2,333.33 | $323,729 |
| FHA 31/43 | $2,583.33 | $356,392 |
| VA 41% (no PMI) | $2,916.67 | $420,664 |
| Stretch 36/43 | $3,000.00 | $410,829 |
The looser rules raise the price by up to $97,000, but every extra dollar of payment comes out of the same paycheck. A lender’s maximum is a ceiling, not a target.
How rates change your budget
With the example 1 numbers, each half-point move in the rate shifts the affordable price by about $11,000 to $13,500:
| Rate | Affordable price |
|---|---|
| 5.5% | $349,741 |
| 6.0% | $336,318 |
| 6.5% | $323,729 |
| 7.0% | $311,922 |
| 7.5% | $300,846 |
The table under the result does this for your own numbers. Buying points to lower the rate, or waiting for rates to fall, has a direct effect on the price you can reach.
What lenders check besides DTI
Your ratios set the payment ceiling, but they are not the only test. Before approving a loan, lenders also look at:
- Credit score. It sets your rate and your PMI cost, and each program has a minimum (for example 580 for 3.5% down on FHA).
- Cash reserves. Some loans require a few months of payments left in the bank after closing, especially for higher DTIs.
- Stable income. Usually two years of steady employment or self-employment history, documented with pay stubs, W-2s or tax returns.
- The property. The appraisal must support the price; if it comes in low, you may need more cash or a lower price.
- Loan limits. Conforming, FHA and some state programs cap the loan size by county.
A pre-approval letter from a lender checks all of these and is the best confirmation of the number this calculator gives you.
Tips for a realistic budget
- Check your take-home pay. Lenders use gross income, but you pay bills from net income. Run your salary through the paycheck calculator and make sure the payment still leaves room for savings and surprises.
- Use real tax and insurance numbers. Property tax ranges from about 0.3% to over 2% of value across US states, and insurance has risen sharply in storm- and fire-prone areas.
- Keep cash for closing. Closing costs often run 2% to 5% of the price, on top of your down payment. The down payment calculator adds them up.
- Budget for upkeep. A common rule of thumb is 1% of the home’s value a year for maintenance, which lenders do not count.
- Know your exact DTI. The debt-to-income ratio calculator shows both ratios and how much room you have under each limit.
Common mistakes
- Counting rent as a debt. Your current rent is replaced by the new mortgage, so leave it out of monthly debts.
- Leaving out PMI or MIP. With less than 20% down on a conventional loan you pay PMI; FHA loans charge MIP (put the annual rate, usually 0.55%, in the PMI box). Both cut the price you can afford.
- Forgetting HOA dues. Lenders count them in the housing ratio. A $300 HOA fee costs roughly $47,000 of borrowing power at 6.5% over 30 years.
- Treating the maximum as the goal. The highest approved price leaves no slack for job changes, repairs or rate rises on other debts. Many buyers aim 10% to 20% below it.
Once you have a target price, the mortgage calculator shows the full payment and amortization schedule, and the FHA loan calculator or VA loan calculator add their program’s own fees.