How much house can I afford?
How lenders use debt-to-income to size your budget, what goes into the monthly payment, and a worked example on a $100,000 income at today’s rates.
By Sowmya, Licensed Loan Officer, NMLS #2528067Published 7 min read
The most useful number to know before you shop for a home isn’t a price. It’s the monthly payment you can carry comfortably. Here’s how lenders size your budget, how to set your own limit, and a worked example.
How lenders decide what you can afford
Lenders mainly use your debt-to-income ratio (DTI). They add up your monthly debt payments, including the new mortgage payment, and divide by your gross (pre-tax) monthly income.
- Housing ratio (front-end): just the new housing payment divided by income.
- Total ratio (back-end): the housing payment plus car loans, student loans, minimum credit card payments and other debts, divided by income.
Common guidelines are about 28% for housing and 36% total. Many conventional and FHA loans go higher, often up to about 43% to 50% total, depending on credit, savings and the loan program. Check your own ratio with the DTI calculator.
What goes into the monthly payment
- Principal and interest on the loan
- Property taxes, usually collected monthly into escrow
- Homeowners insurance
- Mortgage insurance if you put down less than 20% on a conventional loan, or on most FHA loans
- HOA dues, if the home has them
Taxes and insurance vary a lot by address. Paste a listing into our property cost lookup to see the real taxes and HOA for a specific home.
A worked example
The gap between those two numbers is about $90,000. A lender may approve the higher one, but the lower one leaves room for savings, repairs and surprises. Try your own numbers in the affordability calculator.
Don’t forget cash to close
- Down payment: from 3% to 3.5% on some conventional and FHA loans, more for better pricing or to avoid mortgage insurance.
- Closing costs: often 2% to 5% of the price. Some are shoppable, and sellers may pay part of them.
- Reserves: money left in the bank after closing. Lenders sometimes require it, and you’ll want it anyway.
Ways to stretch your budget safely
- Pay off a monthly debt before applying, such as a small car loan. It lowers your total debt-to-income ratio, which can raise the amount a lender will approve.
- Ask for seller concessions toward closing costs or a rate buydown. See how concessions and buydowns work.
- Compare loan types. FHA, VA and conventional loans treat down payments, mortgage insurance and DTI differently.
- Watch for rate dips with rate alerts. Half a percent lower can add about $10,000 to a comfortable budget in our example.
When you have a number you’re comfortable with, get pre-qualified so sellers and agents know you’re ready.
Frequently asked questions.
How much house can I afford on a $100,000 salary?
In our example, with $500 a month in other debts, 10% down and a 7% rate, about $257,000 keeps housing near 28% of income. A lender might approve up to about $349,000. Your taxes, insurance, debts and rate will change the answer.
What is a good debt-to-income ratio for a mortgage?
About 36% or less in total debts is comfortable for most households. Many loans allow up to about 43% to 50% depending on the program, credit and savings.
Does the 28/36 rule still apply?
It’s a good comfort guideline, not a lending rule. Lenders often allow higher ratios, but staying near 28% for housing and 36% overall leaves more room in your budget.
What costs besides the mortgage should I budget for?
Property taxes, homeowners insurance, mortgage insurance if applicable, HOA dues, closing costs, moving costs, and ongoing maintenance and repairs.
About the author. Sowmya is a licensed loan officer (NMLS #2528067) in Texas who writes and reviews the guides in the Kwalifai Learning Hub. More about Sowmya
Sowmya is a licensed loan officer (NMLS #2528067) licensed in Texas. Kwalifai is a technology platform, not a lender. Mortgage services are provided by a licensed loan originator (NMLS #2528067) enrolled with Ensure Home Loans LLC (NMLS #1666674). This article is for general educational purposes only and is not an offer to lend or a commitment to make a loan. Loan programs, rates, terms and eligibility vary and are subject to change. Consult a tax professional for tax advice. Equal Housing Opportunity.