How Much House Can You Afford? The Guideline Number and the Lender's Maximum
There are two answers to this question and they are far apart. One is the price a conservative guideline supports. The other is the price a lender may approve. Both are computed from the same income with the same arithmetic. The difference between them, in the example below, is $163,313 of house and $1,250 a month.
Take an illustrative household, not a real one: $90,000 a year before tax, $400 a month of existing debt payments, $40,000 saved, and a 30-year mortgage at 6.5%. Property tax runs 1.1% of value a year and insurance costs $1,800 a year. Every result below changes one input at a time and holds the rest fixed.
The same income, three limits
Two ratios of gross monthly income frame this question: housing costs alone, and all debt payments including housing. The Consumer Financial Protection Bureau (CFPB) defines the debt-to-income ratio (DTI) as all monthly debt payments divided by gross monthly income, and notes that different loan products and lenders will have different limits. Three limits matter here: the first is a convention, the other two are lender rules, and only the total-debt ratio is capped by the lender rules.
The first is the guideline. As the Bogleheads wiki puts it: "Many financial experts suggest that your monthly mortgage payment should not exceed 28% of your gross monthly income and that your total monthly debt payments should not exceed 36% of your gross monthly income." The other two come from the Fannie Mae Selling Guide, which sets a maximum total DTI ratio of 36% for manually underwritten loans, meaning loans a person rather than software reviews, allows it to be exceeded up to 45% when the borrower meets credit-score and reserve requirements, and permits 50% for loans underwritten through Desktop Underwriter, its automated system.
What the affordable payment has to cover
The guideline allows $2,100 a month, and that figure is not the mortgage. The CFPB defines the difference: a total monthly payment "usually includes additional costs like homeowners insurance, taxes, and possibly mortgage insurance." Of tax and insurance it says: "These are costs of homeownership, not of borrowing money." They consume the same allowance all the same.
Mortgage insurance is in that stack because the down payment is under 20% of the price. The CFPB describes private mortgage insurance as insurance "you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price." The model charges 0.5% of the loan a year while that is true, which works out to $42 a month for every $100,000 borrowed. Freddie Mac's published figure for the same charge is that "you can expect to pay approximately between $30 and $70 per month for every $100,000 borrowed." The assumption sits inside that range rather than at its edge.
Existing debt does nothing, until it does
Under the guideline, the household's $400 a month of car and card payments has no effect on the price it supports. Neither would $600. The reason is arithmetic: the gap between the two ratios is 8% of gross income, which is $600 a month here, and the housing limit keeps binding until other debts exceed it.
The practical reading is not that debt is harmless. It is that you should know which limit is binding before you act: $100 a month of debt cleared buys back house on one side of that line and nothing on the other. The common advice to pay off the car loan before applying helps only on one side of it. The calculator names the binding constraint for your numbers.
Two inputs move the answer more than your income does
The mortgage rate and the down payment both change how much house a fixed payment buys, and neither is about earning more.
The down payment does something less obvious. Going from $60,000 to $65,000 is only $5,000 more cash, but it lifts the price you can support by $17,417, because crossing 20% of the price removes the mortgage-insurance charge and hands that money back to principal and interest.
| Down payment | Price you can support | Loan | Mortgage insurance |
|---|---|---|---|
| $40,000 | $289,978 | $249,978 | $104 a month |
| $60,000 | $307,583 | $247,583 | $103 a month |
| $65,000 | $325,000 | $260,000 | None |
| $80,000 | $339,303 | $259,303 | None |
The stress test worth running before the offer
Two incomes make the guideline generous. A household earning $150,000 between them supports $472,888 under the same 28% rule, with a $3,500 monthly payment. Now suppose only the $90,000 earner is working, through a layoff, a birth, or a return to study. That payment is 46.7% of one gross income on its own, and 52.0% once the $400 of other debt is added.
Nothing in the model forbids that. It is worth seeing before you sign: an approval tests the ratios on the day you apply, and the payment then runs for 30 years. Running the guideline against a single income is a cheap way to price the risk you are taking.
What this calculation leaves out
- Maintenance and repairs. Not modeled here, and not in your payment either. They are real costs of owning that the ratios ignore entirely.
- Cash to close. Closing costs are a separate hurdle from the ratios. A price you can support monthly may still be out of reach at the closing table.
- Program-specific rules. These are conventional-loan limits. Loans backed by the Federal Housing Administration, the Department of Veterans Affairs, or the Department of Agriculture follow their own program rules.
- Anything about your income beyond one number. Bonus and variable pay, self-employment averaging, and rental offsets are all assessed differently from a single gross figure.
Run your own numbers
The how much house calculator solves the price for your income, debts, and down payment, names which ratio is binding, and shows what the full monthly payment covers. Run it twice: once as planned, once on one income. From there:
- Mortgage amortization to see the payment split over the term.
- Rent vs. buy guide for whether to buy at all this year.
- Targeted savings to plan the down payment that removes the insurance charge.
- Funding-priority guide to place a down payment among your other goals.
How this is sourced
The 36%, 45%, and 50% limits are quoted from the Fannie Mae Selling Guide. The 28/36 guideline is quoted from the Bogleheads wiki and is a convention, not a lender rule. The definition of the debt-to-income ratio, the composition of a total monthly payment, the treatment of tax and insurance as costs of ownership, and the mortgage-insurance requirement below 20% down all come from the Consumer Financial Protection Bureau; the published cost range for that insurance comes from Freddie Mac. Every price, payment, and split on this page is computed by the same model as the linked calculator, from the assumptions stated above.
Sources
Grounded in authoritative primary sources:
This is educational, not personalized financial advice, and it is not a lending decision. Only a lender can tell you what you qualify for. For your specific situation, talk to a licensed professional.