Why use this calculator
Understanding how much home you can afford prevents overextending your finances. This calculator uses the 28/36 rule that lenders use to determine your maximum home price based on your income, debts, and down payment.
How to use it
Enter your annual income, monthly debt payments, desired down payment percentage, current mortgage rates, loan term, property tax rate, and insurance costs. The calculator applies the 28% front-end and 36% back-end debt-to-income ratios to determine your maximum affordable home price.
The formula
Front-end ratio: Max housing payment = Gross monthly income x 28%. Back-end ratio: Max total debt payments = Gross monthly income x 36%. The lower of the two limits determines your max monthly payment, which is then used to calculate the maximum loan amount using the mortgage payment formula.
Worked examples
A household earning $85,000/year with $500/month in debts and 20% down at 6.5% rate
Can afford approximately a $320,000 home with a monthly payment around $1,983
A single earner making $60,000/year with no debts and 10% down at 7% rate
Can afford approximately a $230,000 home with a monthly payment around $1,400
When people use it
- First-time homebuyers determining their budget before house hunting
- Families planning to upgrade to a larger home
- Renters evaluating whether they can transition to homeownership
- Financial planning for a future home purchase
Tips
- The 28/36 rule is a guideline; some lenders allow higher ratios for strong applicants
- Include all monthly debts like car loans, student loans, and minimum credit card payments
- A larger down payment reduces your monthly payment and may eliminate PMI
- Consider additional costs like maintenance, HOA fees, and utilities beyond PITI
Questions people ask
- What is the 28/36 rule?
- The 28/36 rule states that your housing costs should not exceed 28% of gross monthly income (front-end ratio), and total debt payments should not exceed 36% (back-end ratio). Lenders use these ratios to assess affordability.
- Does this include PMI?
- This calculator does not separately calculate PMI. If your down payment is less than 20%, you may need PMI which would reduce your affordable home price slightly.
- Should I buy the maximum I can afford?
- Not necessarily. Just because you qualify for a certain amount doesn't mean you should spend it all. Consider your lifestyle, savings goals, and emergency fund needs.