How lenders decide what you can afford
Most mortgage lenders look at two debt-to-income ratios based on gross (before-tax) income. The front-end ratio limits your housing payment, meaning principal, interest, property tax, insurance, mortgage insurance and HOA fees, to about 28% of income. The back-end ratio limits all debt payments, housing plus car loans, student loans and card minimums, to about 36%. The calculator uses whichever limit is lower and finds the highest price that fits.
With $110,000 of household income, $600 a month in other debts, $60,000 down and a 6.5% rate, the limit is about $2,567 a month, which supports a home of roughly $369,000.
Affordable isn't the same as comfortable
Some loan programs allow a back-end ratio of 43% or more, shown as the stretch budget. Borrowing that much leaves little room for savings, repairs or a drop in income. Many buyers aim below the lender's maximum.
Ways to afford more
- Pay down a car loan or card balance. Every $100 less in monthly debt payments adds room under the back-end limit.
- Put down 20% to avoid PMI.
- Compare rates. The chart shows how much the affordable price moves with each half-point.