House Affordability Calculator
Discover how much house you can realistically afford based on your income, debts, savings, and local housing costs. This calculator applies real lender guidelines including front-end and back-end DTI limits, provides monthly payment breakdowns, and helps you understand your true buying power.
How Much House Can You Afford? A Complete Guide
Determining how much house you can afford involves more than just qualifying for a mortgage—it requires balancing what lenders will approve with what fits comfortably in your budget. This comprehensive guide explains the key factors that determine your buying power, the formulas lenders use, and strategies to maximize your home purchasing potential while maintaining financial health.
The Two Key Affordability Constraints
Lenders evaluate your ability to afford a home using two primary metrics:
1. Front-End Debt-to-Income Ratio (Housing Ratio)
The front-end DTI measures housing costs relative to your gross income. It includes Principal, Interest, Taxes, and Insurance (PITI), plus any HOA fees:
Standard maximum: 28% for conventional loans
2. Back-End Debt-to-Income Ratio (Total DTI)
The back-end DTI includes housing costs plus all other monthly debt obligations:
Standard maximum: 36% (conservative) to 43% (Qualified Mortgage limit) to 50% (FHA with compensating factors)
DTI Limits by Loan Type
| Loan Type | Front-End Max | Back-End Max | Notes |
|---|---|---|---|
| Conventional | 28% | 36-45% | Higher limits with strong credit/reserves |
| FHA | 31% | 43-50% | 50% with compensating factors |
| VA | None | 41% | Uses residual income test too |
| USDA | 29% | 41% | Income limits apply |
| Jumbo | 28% | 36-43% | Stricter requirements |
The Home Affordability Formula
Your maximum affordable home price is calculated by working backward from your DTI constraints. The process:
- Calculate maximum monthly housing payment using front-end DTI
- Calculate available housing payment after other debts (back-end DTI)
- Take the lower of these two amounts
- Subtract taxes, insurance, PMI, and HOA to get max P&I payment
- Calculate loan amount that produces this P&I payment
- Add down payment to get maximum home price
The monthly Principal and Interest (P&I) payment formula:
Where L is loan amount, r is monthly interest rate, and n is total number of payments.
Understanding PITI: The Four Components
Principal
The portion of each payment that reduces your loan balance. In early years, most of your payment goes to interest; principal increases over time through amortization.
Interest
The cost of borrowing, calculated as the loan balance times the monthly interest rate. Even small rate differences significantly impact affordability:
| Interest Rate | Monthly P&I on $300,000 | Total Interest (30 yr) |
|---|---|---|
| 6.0% | $1,799 | $347,515 |
| 6.5% | $1,896 | $382,633 |
| 7.0% | $1,996 | $418,527 |
| 7.5% | $2,098 | $455,089 |
| 8.0% | $2,201 | $492,256 |
Taxes
Property taxes vary dramatically by location:
- New Jersey: ~2.49% average (highest)
- Illinois: ~2.27%
- Texas: ~1.80%
- California: ~0.76%
- Hawaii: ~0.28% (lowest)
On a $400,000 home, property taxes could range from $1,120/year (Hawaii) to $9,960/year (New Jersey).
Insurance
Homeowner's insurance costs depend on location, home value, coverage amount, and risk factors (flood zones, hurricane areas). Average: $1,500-$3,000 annually for a typical home.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, most lenders require PMI to protect against default risk:
| Down Payment | LTV Ratio | Typical PMI Rate | Monthly PMI ($300k loan) |
|---|---|---|---|
| 3% | 97% | 0.80-1.50% | $200-$375 |
| 5% | 95% | 0.60-1.20% | $150-$300 |
| 10% | 90% | 0.40-0.80% | $100-$200 |
| 15% | 85% | 0.25-0.50% | $63-$125 |
| 20%+ | 80% or less | None | $0 |
PMI can be removed once you reach 20% equity (80% LTV) for conventional loans. FHA loans require mortgage insurance for the life of the loan unless you put 10%+ down.
Down Payment Strategies
Minimum Down Payment Requirements
- Conventional: 3% minimum (5% for investment properties)
- FHA: 3.5% minimum (580+ credit score)
- VA: 0% (eligible veterans/service members)
- USDA: 0% (rural areas, income limits)
The 20% Down Payment Trade-Off
Putting 20% down eliminates PMI but requires significant savings. Consider:
- Time value: Years of rent while saving vs. building equity now
- Opportunity cost: Could that money earn more invested elsewhere?
- PMI isn't permanent: Can be removed once you hit 20% equity
- Home appreciation: You benefit from price gains on the whole home, not just your down payment
Hidden Costs of Homeownership
Beyond PITI, budget for these ongoing expenses:
| Expense Category | Annual Estimate | Rule of Thumb |
|---|---|---|
| Maintenance/Repairs | $3,000-$10,000+ | 1-3% of home value |
| Utilities | $3,000-$6,000 | Higher than apartment |
| Lawn/Yard Care | $500-$2,500 | DIY vs. service |
| Major Repairs Fund | $1,000-$5,000 | HVAC, roof, appliances |
| Closing Costs (one-time) | $8,000-$25,000 | 2-5% of purchase price |
The 28/36 Rule Explained
The traditional "28/36 rule" provides a conservative affordability guideline:
- 28%: Maximum housing costs as percentage of gross income
- 36%: Maximum total debt payments as percentage of gross income
For a household earning $100,000 annually ($8,333/month):
- Max housing: $8,333 × 28% = $2,333/month
- Max total debt: $8,333 × 36% = $3,000/month
Compensating Factors That Increase Approval Odds
Lenders may approve higher DTIs with these compensating factors:
- Cash Reserves: 6+ months of mortgage payments saved
- Excellent Credit: 740+ FICO score
- Large Down Payment: 20%+ equity at purchase
- Low LTV: Significant home equity
- Stable Employment: 2+ years in same field
- Residual Income: Leftover money after all expenses (VA loans)
- First-Time Homebuyer Programs: State and local incentives
Affordability by Income Level
General guidelines for maximum home price by income (assuming 7% rate, 20% down, 1.25% property tax, good credit, minimal debt):
| Annual Income | Conservative (28/36) | Moderate (31/43) | Aggressive (35/50) |
|---|---|---|---|
| $50,000 | $150,000 | $175,000 | $200,000 |
| $75,000 | $225,000 | $262,000 | $300,000 |
| $100,000 | $300,000 | $350,000 | $400,000 |
| $150,000 | $450,000 | $525,000 | $600,000 |
| $200,000 | $600,000 | $700,000 | $800,000 |
Strategies to Afford More Home
1. Pay Down Existing Debt
Reducing monthly obligations improves your back-end DTI. Paying off a $400/month car payment could increase buying power by $50,000+.
2. Increase Your Down Payment
A larger down payment reduces your loan amount, monthly payment, and eliminates or reduces PMI.
3. Improve Your Credit Score
Better credit qualifies you for lower interest rates. A 0.5% rate reduction on $300,000 saves ~$90/month.
4. Consider a Longer Loan Term
30-year mortgages have lower monthly payments than 15-year, though you pay more interest over time.
5. Explore Low-Down-Payment Programs
FHA, VA, USDA, and conventional 97% programs reduce upfront costs, allowing more cash for the home price.
6. Buy Points to Lower Your Rate
Mortgage points (1 point = 1% of loan) can reduce your rate, lowering monthly payments and improving DTI.
Common Affordability Mistakes
- Maxing Out Approval: Just because you qualify doesn't mean it's comfortable
- Ignoring Future Changes: Will your income/expenses change? Kids, job changes, etc.
- Forgetting Closing Costs: 2-5% of purchase price needed at closing
- Underestimating Maintenance: Homes require ongoing repair investment
- Not Getting Pre-Approved: Know your actual limits before shopping
Frequently Asked Questions
How much income do I need for a $300,000 house?
With 20% down ($240,000 loan), 7% rate, and standard taxes/insurance, you'd need approximately $75,000-$85,000 annual income to qualify under traditional guidelines.
Can I afford a house on a single income?
Yes, many single-income households buy homes. The key is keeping debts low and having a solid down payment. Consider more affordable areas if needed.
Should I buy the most expensive house I qualify for?
Generally no. Leave room for life changes, emergencies, and enjoying your income. Many financial advisors recommend spending 2-3× annual income on a home.
How do bonuses and commissions count toward income?
Lenders typically average 2 years of bonus/commission income and require documentation showing it's likely to continue.
What if my spouse has bad credit?
You can apply solo using only your income and credit. This limits borrowing power but may secure better rates.
The Bottom Line
Home affordability depends on the intersection of your income, existing debts, down payment, local costs, and lender guidelines. While this calculator helps estimate your buying power, the most important consideration is your personal comfort level. A mortgage you can afford on paper but that causes financial stress isn't truly affordable.
We recommend aiming for a total housing payment (PITI + HOA) that leaves comfortable margin for savings, lifestyle, and unexpected expenses—typically keeping housing costs at or below 25% of take-home pay for optimal financial flexibility.