How affordability is calculated
- Find the largest housing payment allowed: the lower of income × front-end ratio and income × back-end ratio − other debts.
- That payment must cover principal and interest on the loan, property tax and insurance.
- Solve for the home price where these costs exactly equal the allowed payment.
Price = (Max payment − Insurance/12 + f × Down) ÷ (f + Tax rate/12)
Here f is the monthly payment per $1 borrowed at your rate and term.
Example: On a $100,000 salary ($8,333 a month), 28% allows $2,333 for housing; 36% minus $400 of other debt allows $2,600. The stricter limit is $2,333. With $40,000 down, 6.75% for 30 years, 1.1% property tax and $1,400 insurance, the maximum price is about $334,500 — principal and interest of about $1,910, tax of $307 and insurance of $117.
Beyond the lender’s numbers
- Closing costs typically run 2–5% of the price — budget for them separately from your down payment.
- Emergency fund: keep several months of expenses after closing.
- Maintenance: plan roughly 1% of the home’s value per year.
- Rate sensitivity: each 1% rise in rates reduces buying power by roughly 10%.
Frequently asked questions
How much house can I afford on my salary?
Using the 28/36 rule, your total housing payment should stay under 28% of gross monthly income, and all debts under 36%. On a $100,000 salary with $400 of other monthly debt and $40,000 down at 6.75%, that points to a home around $334,000.
What is the 28/36 rule?
It is a lending guideline: no more than 28% of gross monthly income on housing (principal, interest, taxes, insurance) and no more than 36% on total debt payments. The calculator uses whichever limit is stricter for you.
Does this include PMI?
No. If your down payment is under 20%, expect private mortgage insurance of roughly 0.3–1.5% of the loan per year, which would lower the price you can afford. Check the full payment with the mortgage calculator.
Should I borrow the maximum I qualify for?
Not necessarily. Lenders do not account for childcare, retirement saving, commuting or maintenance costs (often 1–2% of the home value per year). Many buyers are more comfortable well below the maximum.