How Much House Can I Afford?

Use our mortgage affordability calculator to estimate your maximum home price based on income, debts and down payment

How to Calculate How Much House Can I Afford

The 28/36 Rule

This mortgage affordability calculator uses the standard 28/36 rule, which is widely used by lenders in the United States to determine mortgage eligibility:

Front-End Ratio (28%)

Total monthly housing payment (PITI) should not exceed 28% of gross monthly income.

PITI ≤ 0.28 × Gross Monthly Income

Back-End Ratio (36%)

Total monthly debt payments should not exceed 36% of gross monthly income.

Total Debt ≤ 0.36 × Gross Monthly Income

PITI Calculation

PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a typical monthly mortgage payment:

  • Principal — The amount borrowed to purchase the home
  • Interest — The cost of borrowing money from the lender
  • Taxes — Annual property taxes divided by 12
  • Insurance — Homeowners insurance premium divided by 12

Loan Amount Calculation

The maximum loan amount is calculated using the present value of an ordinary annuity formula, which determines how much money can be borrowed given a fixed monthly payment, interest rate, and loan term.

PV = PMT × [(1 - (1+r)^-n) / r]
  • PV = Present value (maximum loan amount)
  • PMT = Maximum monthly payment from 28/36 rule
  • r = Monthly interest rate
  • n = Total number of payments

Private Mortgage Insurance (PMI)

When the down payment is less than 20% of the home value, PMI is typically required. This calculator includes a 0.5% annual PMI rate in the affordability calculation when applicable.

Frequently Asked Questions

What does the 28/36 rule mean?
The 28/36 rule is a standard guideline used by lenders to assess mortgage eligibility. It states that your total monthly housing payment should not exceed 28% of your gross monthly income, and your total monthly debt payments should not exceed 36% of your gross monthly income.
What counts as monthly debt?
Monthly debt includes all recurring obligations such as credit card payments, car loans, student loans, personal loans, child support, and alimony. It does not include utilities, groceries, or other monthly living expenses.
How accurate is this affordability estimate?
This calculator provides an estimate based on standard lending guidelines. Actual mortgage approval depends on many factors including credit score, employment history, savings reserves, and the specific lender's underwriting criteria.
Can I afford more with a larger down payment?
Yes, a larger down payment increases your purchasing power by reducing the loan amount needed and potentially eliminating PMI. This can allow you to afford a more expensive home within the same monthly payment budget.
How does interest rate affect affordability?
Lower interest rates increase your purchasing power because they reduce the monthly payment for the same loan amount. Even a small decrease in interest rate can significantly increase the maximum home price you can afford.

Disclaimer:

All calculations are approximate for planning purposes only. This tool does not provide official financial, legal, or tax advice. All financial decisions should be verified with a qualified mortgage lender or financial advisor.

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