How lenders decide how much house you can afford
Mortgage lenders don't look at the home price first — they look at the monthly payment your income can support. Two debt-to-income (DTI) limits do most of the work:
- Front-end ratio: your total housing payment — principal, interest, property tax, homeowners insurance, mortgage insurance and HOA dues — divided by your gross monthly income. The classic guideline is 28%.
- Back-end ratio: housing plus all other monthly debt payments (car loans, student loans, credit card minimums, child support) divided by gross income. The classic limit is 36%; many conventional loans allow up to about 45%–50% with strong credit, and FHA loans commonly use 31% / 43%.
The calculator finds the largest payment that satisfies both limits, then works backwards to the home price using your down payment, interest rate, property tax and insurance.
Worked example
A household earning $110,000 a year has a gross monthly income of about $9,167. Under the 28/36 rule, housing can be up to $2,567 a month (28%), and housing plus debts up to $3,300 (36%). With $500 in other debts, the back-end limit allows $2,800 for housing, so the lower front-end limit of $2,567 applies. After property tax and insurance, the rest goes to principal and interest, which at today's rates supports a loan in the mid-$300,000s — plus the down payment, that sets the price range.
How to afford more house (safely)
- Pay down debts first. Every $100 of monthly debt you eliminate frees up about $100 of housing budget under the back-end rule.
- Save a bigger down payment. Reaching 20% removes private mortgage insurance (PMI) on conventional loans and lowers the loan amount.
- Improve your credit score. A higher score usually means a lower rate; on a $350,000 loan, each 0.5 percentage point is roughly $110–$120 a month.
- Compare property taxes. They vary from under 0.5% of value a year in some states to over 2% in others, which changes affordability as much as the interest rate does.
What you can afford vs. what you should spend
Lender limits are a ceiling, not a target. They don't account for child care, retirement saving, maintenance (often 1%–2% of the home's value per year) or a cushion for emergencies. Many buyers aim for a payment comfortably below the maximum. In Canada, lenders apply GDS and TDS ratios plus the mortgage stress test instead — see our Canada mortgage calculator.
Don't forget closing costs and reserves
Beyond the down payment, buyers typically pay closing costs of 2% to 5% of the purchase price for lender fees, appraisal, title insurance and prepaid taxes and insurance. Many lenders also like to see two to six months of mortgage payments in savings after closing. Budget for moving costs, furniture and early repairs as well, so the purchase doesn't leave you without an emergency fund.
Frequently asked questions
How much house can I afford on $100,000 a year?
What is the 28/36 rule?
Does the calculator include PMI?
Which interest rate does it use?
Sources & methodology
This calculator was last reviewed on November 2, 2026. Figures are based on the following official and primary sources:
- Consumer Financial Protection Bureau – Debt-to-income ratio
- Freddie Mac – Primary Mortgage Market Survey
- Freddie Mac PMMS via FRED; Bank of Canada Valet API
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