How Much House Can I Afford?
Enter your income, monthly debts, and down payment to see the maximum home price you can afford. This calculator uses standard lending ratios to give you a realistic budget.
Understanding Debt-to-Income Ratios
Lenders use two ratios to determine how much you can borrow. The front-end ratio divides your proposed housing payment by your gross monthly income. Most lenders cap this at 28%. The back-end ratio adds all debt payments (housing, car, student loans, credit cards) and divides by gross income. This is typically capped at 36%.
If you earn $6,000 per month, lenders want your housing payment below $1,680 (28%) and total debt below $2,160 (36%). If you already pay $600 in car and student loans, your housing payment is limited to $1,560 to stay under the 36% threshold.
Some loan programs allow higher ratios, especially with excellent credit and substantial savings. FHA loans may go to 31/43, and some portfolio lenders approve 40/50 for strong borrowers. But just because you qualify doesn't mean you should max out. Leave room in your budget for savings and unexpected expenses.
Hidden Costs of Homeownership
Your mortgage payment is just the starting point. Property taxes vary wildly by location, from 0.3% of home value in Hawaii to over 2% in New Jersey. On a $400,000 home, that's $1,200 to $8,000 per year.
Homeowners insurance adds $800 to $2,500 annually for most properties, more in high-risk areas. HOA fees in some communities run $200 to $500 per month. Maintenance averages 1% of home value per year. A $400,000 home costs about $4,000 annually for upkeep, from HVAC servicing to roof repairs.
Add utilities, lawn care, pest control, and periodic major expenses like a new water heater or deck refinishing. Many first-time buyers underestimate these costs and become house poor. A good rule: if your max budget is $400,000, shop for homes at $350,000 to leave breathing room.
Down Payment Strategies
The more you put down, the less you borrow and the lower your monthly payment. A 20% down payment eliminates PMI, which costs 0.5% to 1% of the loan amount annually. On a $300,000 loan, PMI adds $125 to $250 per month until you reach 20% equity.
If you can't save 20%, explore first-time buyer programs. Many states offer down payment assistance grants or low-interest loans. FHA loans require just 3.5% down, and conventional loans now offer 3% options for qualified buyers.
Avoid raiding your retirement accounts for a down payment. The taxes and penalties usually aren't worth it. Instead, save aggressively for 2-3 years. Cut discretionary spending, bank bonuses and tax refunds, and consider a side hustle. Building your down payment also proves to lenders that you can manage money, which may get you better loan terms.
Frequently Asked Questions
What is the 28/36 rule?
Lenders typically want your housing payment to be no more than 28% of gross income and total debt payments (including housing) no more than 36%.
What counts as monthly debt?
Include car loans, student loans, credit card minimum payments, and any other installment debt. Do not include utilities, groceries, or insurance.
How much should I put down?
Aim for 20% to avoid PMI and get better rates. FHA loans allow 3.5% down, but you'll pay mortgage insurance for the life of the loan.
Does this include taxes and insurance?
The payment includes principal and interest only. Add 20-30% for property taxes, insurance, and HOA fees to estimate your full housing cost.
Can I afford more if I have no debt?
Yes. With zero monthly debt, the back-end ratio doesn't limit you, so your max payment depends only on the 28% front-end ratio.