How it works
Lenders size mortgages with two ratios. The front-end ratio caps housing costs at 28% of gross monthly income. The back-end ratio caps housing plus all other monthly debt at 36%. The calculator applies whichever is tighter, subtracts monthly escrow (property tax plus insurance) to find what remains for principal and interest, inverts the mortgage payment formula into a loan amount, and adds your down payment for the affordable home price. On the defaults — $120,000 gross annual income ($10,000/month), $600 other monthly debt, $60,000 down payment, 6.5% rate, 30-year term, $7,200 annual property tax, $2,000 annual insurance — front-end budget is $2,800/month (28% of $10,000). Back-end budget is $3,600 minus $600 debt = $3,000/month for housing. The tighter limit is back-end at $3,000, but escrow consumes $766.67/month ($600 tax + $166.67 insurance), leaving $2,033.33 for P&I. That payment supports a loan of about $321,695, plus $60,000 down = affordable price $381,695. Front-end DTI on the P&I slice is 20.33%; back-end DTI is 26.33%. The CFPB describes these ratios in its owning-a-home toolkit. Ratios are guidelines — high-income buyers sometimes stretch to 43% with compensating factors — but they are where underwriting starts. At 6.5% the payment per $100,000 of loan is much higher than in a 3% era, so the same income buys roughly 25% less house. Pair with mortgage calculator for the all-in payment on a specific property, debt-to-income ratio calculator for DTI alone, and rent vs buy while saving the down payment.
Formula
Front budget = (annual income / 12) × 28%
Back budget = (annual income / 12) × 36% − other monthly debt
Housing cap = min(front, back)
P&I budget = housing cap − (property tax + insurance) / 12
Loan amount = invert amortization at rate and term for P&I budget
Affordable price = loan amount + down payment
Worked example — defaults
P&I budget = $2,033.33
Loan amount = $321,695
Affordable home price = $381,695
Back-end DTI = 26.33%
Tips
- Size on 28% front-end, not the pre-approval ceiling — the letter states the maximum, not the target.
- Pay down car and card debt before applying: every $150/month of debt cuts affordable price by tens of thousands.
- Re-run at 7.5% rate to stress-test — payment sensitivity at higher rates shrinks buying power fast.
- Budget closing costs and immediate repairs (3–5% of price) outside this calculator's output.
- Include HOA in your mental budget if the neighbourhoods you shop charge dues — the tool sets HOA to zero.
Frequently asked questions
- How much house can I afford on the defaults?
- About $381,695 — a $321,695 loan plus $60,000 down. That assumes $120,000 income, $600/month other debt, 6.5% rate, 30-year term, and the listed tax and insurance escrow.
- What is the 28/36 rule?
- Keep housing costs under 28% of gross monthly income and total debt (housing plus everything else) under 36%. Lenders often allow up to 43% back-end with strong credit, but 28/36 is the conservative planning frame this calculator uses.
- Why is my affordable price lower than a pre-approval letter?
- Pre-approval may use higher DTI limits, ignore some debts, or assume lower escrow. This tool applies 28/36 consistently with your entered tax, insurance and debt — a safer budget number than the lender maximum.
- How much house on $100,000 income with no debt?
- Roughly $310,000–$340,000 at 6.5% with 20% down and typical escrow — run your exact tax and insurance for precision. Every $600/month of other debt on the defaults cuts roughly $80,000 from the affordable price.
- Should I include bonuses in income?
- Only predictable, documented bonuses lenders will count — usually two years of consistent receipt. For planning, use base salary and treat bonus as upside that accelerates the down payment rather than stretching the mortgage.