How Much House Can I Afford?

"How much house can I afford?" usually means: given your income, debts, down payment, and current interest rates, what's the largest monthly housing payment you can take on without overstretching? Lenders answer this with two debt ratios, and you should run your own version before you shop. This guide explains both, with a worked example and the assumptions that change the answer.

Mortgage lenders focus on two debt-to-income (DTI) ratios when they decide how much you can borrow:

• Front-end ratio — your total monthly housing payment (principal + interest + property taxes + homeowners insurance +, if applicable, HOA and mortgage insurance) divided by your gross monthly income. A common guideline is to keep this at or below 28%.
• Back-end ratio — your housing payment plus all other monthly debt (auto loans, student loans, minimum credit-card payments, child support, etc.) divided by your gross monthly income. A common guideline is 36%, though some loan programs allow more.

These percentages are guidelines, not law. Government-backed loans such as FHA loans may allow higher DTI ratios, while conventional loans and your own comfort may call for lower ones.

Start with your gross (pre-tax) monthly income. Multiply it by the back-end ratio you're comfortable with — say 36% — then subtract your existing monthly debt payments. What's left is roughly the total monthly housing payment your budget can carry:

Max monthly housing payment
  = (gross monthly income × 0.36) − existing monthly debts

That payment still has to cover taxes, insurance, and (for down payments under 20%) mortgage insurance — not just principal and interest. So the loan amount it maps to is smaller than you might expect.

Say your household brings in these figures:

• Gross monthly income: $7,500 ($90,000 / year)
• Existing monthly debts: $500 (auto loan + minimum card payments)
• Down payment saved: $40,000
• Property taxes + insurance (estimate): $350 / month
• Interest rate: 6.5%, 30-year fixed

Using a 36% back-end cap: ($7,500 × 0.36) − $500 = $2,200 total monthly housing payment. After subtracting $350 for taxes and insurance, about $1,850 is left for principal + interest. At 6.5% over 30 years, that payment supports roughly a $293,000 loan. Add the $40,000 down payment and the target purchase price is around $333,000 — before closing costs.

Move the interest rate to 7.5% and the same payment supports about $265,000 of loan; raise existing debts and the ceiling drops. The point: affordability is sensitive to rate and debt, not just income.

• Interest rate. Lower rates let you borrow more for the same payment; small changes move the ceiling a lot.
• Down payment. A bigger down payment reduces the loan, may remove mortgage insurance, and changes your loan-to-value.
• Property taxes and insurance. These vary widely by location and are part of the monthly cost, not an add-on.
• Existing debt. Paying down a car loan or card balance raises your ceiling directly.
• Your own comfort. A lender's max is not your budget. Many households target 25–28% of gross — not 36% — to leave room for savings and surprises.