Knowing how much you can borrow is the first step in the home-buying journey. This calculator helps you determine a realistic home price based on your income, debts, down payment, and current interest rates.
How This Calculator Works
This calculator estimates your maximum home price based on:
- Annual Gross Income: Your household income before taxes
- Monthly Debts: Car loans, student loans, and credit card payments
- Down Payment: The cash you have available for the purchase
- Loan Term & Interest Rate: The cost and duration of the mortgage
- DTI Ratio: Lenders' standard debt-to-income benchmarks
The Formula Explained
Lenders primarily use the Debt-to-Income (DTI) Ratio to qualify borrowers.
Front-End DTI (usually 28%): (Mortgage Payment / Gross Monthly Income) Back-End DTI (usually 36-43%): (Total Debt Payments / Gross Monthly Income)
The calculator determines the maximum monthly payment you can afford under these rules, then works backward through the mortgage formula to find the corresponding loan amount.
Step-by-Step Example
Scenario: Couple Earning $120,000 ($10,000/mo)
- Monthly Debts: $500 (Car) + $300 (Student Loan) = $800
- Down Payment: $50,000
- Rate: 6.5%
| Component | Calculation | Result |
| Max Monthly PITI (36% DTI) | ($10,000 × 0.36) - $800 | $2,800 |
| Estimated Tax/Ins/PMI | Deduct from payment | ($600) |
| Max Principal & Interest | $2,800 - $600 | $2,200 |
| Max Loan Amount | Calculated from P&I | $348,000 |
| Max Home Price | Loan + Down Payment | $398,000 |
Frequently Asked Questions
What is the 28/36 rule?
The 28/36 rule is a lender guideline: Your mortgage payment (including taxes and insurance) should not exceed 28% of your gross monthly income, and your total debt payments should not exceed 36%. While some lenders allow DTIs up to 43% or 50%, staying near 28/36 ensures long-term stability.
How does my credit score affect my affordability?
A higher credit score unlocks lower interest rates. Even a 1% difference in interest rate can change your buying power by tens of thousands of dollars. For example, on a $2,500 monthly payment, an increase from 6% to 7% could lower your maximum loan by nearly $40,000.
What's the difference between "Qualified" and "Affordable"?
Lenders determine what you are qualified for (the technical maximum), but only you know what is affordable (what you're comfortable with). Lenders don't account for your specific lifestyle, daycare costs, or travel habits. Always build your budget based on your take-home pay, not your gross income.
How much should I save for a down payment?
While many programs allow as little as 3% to 3.5% down (FHA), saving 20% is the gold standard. A 20% down payment eliminates the need for Private Mortgage Insurance (PMI), lowers your interest rate, and provides instant equity in the home.
Should I include taxes and insurance in my calculation?
Absolutely. Your mortgage payment is rarely just principal and interest. Property taxes and homeowners insurance typically add 15-25% to your base payment. This calculator includes estimates for these costs to give you a realistic "out-the-door" monthly number.
How do interest rates impact my home-buying power?
Interest rates have an inverse relationship with affordability. As rates go up, the cost of borrowing increases, which lowers the loan amount you can afford for the same monthly payment. In high-rate environments, buyers often have to look at lower-priced homes or increase their down payments.
Is it better to wait and save more or buy now?
This depends on market conditions and your timeline. If home prices are rising faster than you can save, buying now with a smaller down payment might be better. If prices are stable and you need to improve your credit to get a better rate, waiting is often the wiser choice.
What are closing costs?
Closing costs are the fees paid at the end of the home transaction, typically ranging from 2% to 5% of the purchase price. They include loan origination fees, title insurance, appraisal fees, and taxes. Ensure you have cash saved for closing costs separate from your down payment.
Key Points to Remember
- PITI is the real cost: Principal, Interest, Taxes, and Insurance
- Know your DTI: Keep total debt below 36-43% of gross income
- Prepayment isn't qualification: Get pre-approved by a lender for a real number
- Save beyond the down payment: Budget for closing costs and maintenance
- Don't maximize your loan: Leave breathing room in your monthly budget