Home Affordability Calculator

• Solves for price rather than asking you to guess and check, using both front-end and back-end DTI limits.
• Includes property tax, insurance, PMI and HOA in the affordability test, because lenders do.
• Shows how the answer moves with the interest rate — usually more than people expect.
• This is a budgeting estimate, not a pre-approval. Lenders assess credit, employment and reserves too.

How the calculation works

Lenders assess affordability with two ratios, both measured against gross monthly income:

• Front-end ratio — total housing cost as a share of gross income. A long-standing guideline is 28%.
• Back-end ratio — housing cost plus all other required debt payments. The traditional guideline is 36%, though many programmes go considerably higher.

The monthly budget available for housing is whichever of the two produces the smaller number:

front-end budget = gross monthly income × front-end %
back-end budget  = (gross monthly income × back-end %) − other monthly debt

housing budget = the smaller of the two

Then the calculator works backwards from that budget. Every component of the housing cost depends on the purchase price — the loan payment, the property tax, the mortgage insurance — so there is no simple algebraic inverse. Instead it performs a bisection search: it repeatedly tests a price, computes the full housing cost, and narrows the range until it finds the highest price whose cost fits the budget exactly. That converges to the answer within a dollar in well under a hundred iterations, and it handles the PMI threshold cleanly, which a closed-form approximation does not.

What counts as debt, and what does not

The back-end ratio counts required monthly payments on debts that appear on your credit report:

• Car loans and leases
• Student loan payments
• Minimum credit card payments
• Personal loans
• Court-ordered obligations such as child support or alimony

It does not count utilities, groceries, insurance premiums, childcare, retirement contributions, phone bills or subscriptions. That is the single largest weakness of debt-to-income as a measure of what you can actually afford: a household spending $2,400 a month on childcare and a household spending nothing look identical to the ratio.

It also uses gross income. After federal and state income tax, payroll tax, health premiums and retirement contributions, take-home pay is often 65%–75% of gross. A 28% front-end ratio on gross income can easily be 38%–42% of what actually reaches your account.

Why the interest rate matters more than you expect

Interest rates change affordability far more sharply than most buyers anticipate, because the payment is a non-linear function of the rate.

Take a household that can support $2,400 a month of principal and interest:

A three-point move in rates changes purchasing power by around 27% on the same income. This is why affordability can collapse in a rising-rate environment even when prices are flat, and it is why a rate lock is worth understanding before you make an offer. The sensitivity table in the results shows this for your own figures.

Conventional and FHA, and why the FHA figures are simplified

A conventional loan generally requires private mortgage insurance when the down payment is under 20%, and that PMI can be removed once the balance falls to 80% of the original value.

An FHA loan allows a much smaller down payment but carries two separate mortgage insurance charges: an upfront premium, usually financed into the loan, and an annual premium charged monthly. This calculator models both, but with defaults that you should verify. HUD sets these rates, changes them from time to time, and varies the annual premium by loan term, loan size and loan-to-value. Crucially, on most FHA loans taken with a small down payment the annual premium lasts for the life of the loan rather than dropping off at 80% — removing it usually means refinancing into a conventional loan later.

VA and USDA loans, which have their own rules and can require no down payment at all, are not modelled here. If you are eligible for a VA loan, its terms are materially different and worth investigating directly.

What affordability leaves out

Passing an affordability test is not the same as being able to afford a house. The costs this calculation does not include are substantial:

• Cash to close. Beyond the down payment, closing costs typically run 2%–5% of the price, plus prepaid taxes and insurance for the escrow account.
• Maintenance. A common planning figure is 1% of the home's value annually. On a $400,000 home that is $333 a month you will not spend evenly — it arrives as a $9,000 roof.
• Utilities. Often materially higher than in an apartment, particularly for heating and cooling.
• Furnishing and immediate repairs. Rarely zero, frequently five figures.
• The reserve you should still hold afterwards. Emptying your savings into a down payment leaves you with a house and no cushion, which is how a manageable repair becomes credit card debt.

A reasonable discipline: work out the maximum from this calculator, then set your actual search budget somewhere below it, and check that the payment still works if your income fell by a quarter.

Common mistakes

Shopping at the top of your approval. A pre-approval letter states what a lender will lend, based on ratios that ignore most of your actual spending. It is a ceiling, not a target.

Forgetting that the payment includes tax and insurance. In high-tax counties, property tax alone can add 25%–30% to the loan payment.

Taking on new debt during the process. Financing furniture or a car between pre-approval and closing changes your back-end ratio and can sink the loan at the last moment.

Assuming both incomes will continue. If the affordability calculation only works with both incomes, consider what happens during parental leave, a layoff or a period of illness.

Treating the DTI guidelines as safety limits. They are underwriting thresholds designed to predict default, not to ensure a comfortable life. Many households find 28% of gross income on housing already tight.

Frequently asked questions