Income
$
$
If buying with a partner (optional)
Down Payment & Debts
$
$
Car loans, student loans, credit cards
Loan Parameters
%
%
US avg ~1.1% of home value/year
$
Avg ~$1,500–$2,500/year
Maximum Home Price
—
—
Max Mortgage
—
loan amount
Monthly Payment
—
P&I + tax + insurance
Debt-to-Income
—
back-end DTI
Affordability at Three Price Points
| Home Price | Loan Amount | Monthly P&I | Total Monthly | DTI |
|---|
Your DTI—
0%28% front36% ideal43% max50%+
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How Lenders Calculate What You Can Afford
Mortgage lenders use two debt-to-income (DTI) ratios to determine how much you can borrow:
- Front-end DTI (housing ratio): Monthly housing costs ÷ gross monthly income. Lenders want this below 28–31%.
- Back-end DTI (total debt ratio): All monthly debt payments including housing ÷ gross monthly income. Conventional loans require ≤43%; some allow up to 50% with strong compensating factors.
🏠 2025 first-time buyer note: With rates around 6.5–7%, the home price you could afford on the same income is roughly 30–40% lower than in 2021 when rates were 3%. Focus on your monthly payment comfort level, not just the maximum loan amount.
Hidden Costs of Homeownership
- Property taxes: Average 1.1% of home value per year, but varies widely by state (0.3% in Hawaii to 2.2% in New Jersey)
- Homeowner's insurance: Typically $1,500–$2,500/year depending on location and home value
- PMI: Required if down payment is under 20%. Usually 0.5–1.5% of loan amount per year
- HOA fees: If applicable, can range from $100–$1,000+/month
- Maintenance: Budget 1–2% of home value per year for repairs and upkeep
Frequently Asked Questions
How much down payment do I need?
Conventional loans require a minimum 3–5% down payment, but you'll need 20% to avoid PMI. FHA loans require 3.5% down with a 580+ credit score. VA and USDA loans offer 0% down for eligible buyers. A larger down payment reduces your loan amount, monthly payment, and interest paid over the life of the loan — and may qualify you for a better interest rate.
What is the 28/36 rule?
The 28/36 rule is a classic guideline for housing affordability: spend no more than 28% of your gross monthly income on housing costs (mortgage, taxes, insurance) and no more than 36% of gross income on total debt (housing plus car loans, student loans, credit cards). This is more conservative than what many lenders allow today (up to 43–50% back-end DTI), but it gives you more financial cushion for savings and unexpected expenses.
Should I buy at the maximum I can afford?
Buying at the maximum loan approval amount is risky. Lenders approve based on income stability assumptions that may not hold (job changes, medical expenses, family changes). Financial advisors recommend keeping housing costs at 25–30% of take-home pay, leaving room for retirement savings, emergency funds, and other goals. Being "house poor" — owning a home you can technically afford but that strains your budget — is a common source of financial stress.
How does credit score affect my mortgage rate?
Credit score has a major impact on your mortgage rate. On a $300,000 30-year mortgage, the difference between a 620 score (7.5% rate) and a 760+ score (6.5% rate) is about $200/month — or $72,000 over the life of the loan. If your score is below 740, it's often worth delaying a purchase by 6–12 months to improve it: pay down credit card balances, dispute errors on your credit report, and avoid opening new accounts.
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