How much house can I afford based on my income?

As a general rule, you can afford a home priced at 2.5-3x your annual gross income with a 20% down payment. The exact amount depends on your debt-to-income ratios. Lenders use two DTI ratios: (1) Front-end DTI (housing ratio) - your monthly housing payment divided by gross monthly income, typically should be ≤28%, and (2) Back-end DTI (total debt ratio) - all monthly debts including housing divided by gross income, typically should be ≤36%. Example: $80,000 income = $6,667/mo. With 28% front-end DTI, max housing payment is $1,867/mo. At 7% interest on a 30-year loan, that's approximately $280,000 loan ($350,000 home with 20% down). The calculator factors in property taxes, insurance, HOA fees, and PMI to determine your true maximum.

What is debt-to-income ratio and why does it matter?

Debt-to-Income (DTI) ratio is the percentage of your gross monthly income that goes toward debt payments. Lenders use DTI to assess loan risk. There are two types: (1) Front-end DTI = housing payment only (principal, interest, taxes, insurance, HOA, PMI) ÷ gross monthly income. Lenders want ≤28%. Example: $2,000 housing payment ÷ $7,000 income = 28.6% front-end DTI. (2) Back-end DTI = all monthly debts (housing + car loans + credit cards + student loans) ÷ gross monthly income. Lenders want ≤36%. Example: $2,000 housing + $500 other debts ÷ $7,000 income = 35.7% back-end DTI. The more restrictive ratio limits how much house you can afford. To improve DTI: pay down debts, increase income, or make a larger down payment to reduce the loan amount.

How does my down payment affect affordability?

Down payment affects affordability in three major ways: (1) PMI elimination - putting down 20% or more eliminates private mortgage insurance (typically 0.5-1% of loan amount annually, or $125-250/mo on a $300k loan), immediately reducing your monthly payment and increasing buying power by $15,000-30,000. (2) Lower loan amount - higher down payment means smaller loan and lower monthly principal and interest payment. (3) Better rates - lenders often offer lower interest rates for down payments ≥20% because there's less risk. Example on $350k home at 7%: 5% down ($17,500) = $332,500 loan, $2,512/mo payment + ~$140 PMI = $2,652 total. 20% down ($70,000) = $280,000 loan, $1,863/mo payment, no PMI = $1,863 total. The 20% down payment saves $789/mo and allows you to afford a more expensive home within the same budget.

What other costs should I factor into home affordability?

Beyond principal and interest, factor in PITI + HOA + maintenance: (1) Property taxes - typically 0.5-2.5% of home value annually depending on location. $350k home in 1.2% tax area = $4,200/year or $350/mo. (2) Homeowners insurance - $1,000-2,500/year ($85-200/mo) depending on location, coverage, and home value. (3) HOA fees - $0-500+/mo for condos and planned communities. (4) PMI - 0.5-1% annually if down payment <20%. $300k loan = $125-250/mo. (5) Maintenance and repairs - budget 1% of home value annually ($350k home = $3,500/year or $290/mo). (6) Utilities - $200-400/mo for electric, gas, water, trash, internet. (7) Closing costs - 2-5% of home price ($7,000-17,500 on $350k home) needed upfront. Total monthly for $350k home: $2,200 mortgage + $350 tax + $150 insurance + $100 HOA + $290 maintenance + $300 utilities = $3,390/mo.

Should I get pre-qualified or pre-approved before house hunting?

Get pre-approved (not just pre-qualified) before seriously house hunting. Pre-qualification is an informal estimate based on self-reported info, takes 10 minutes, no documentation required. Pre-approval is a formal commitment from a lender after verifying income, assets, credit, and debts. Process: submit pay stubs, W-2s, tax returns, bank statements, lender checks credit and verifies employment, you receive pre-approval letter stating exact loan amount approved. Benefits: (1) Know your exact budget - no wasted time on homes you can't afford, (2) Stronger offers - sellers take pre-approved buyers seriously, especially in competitive markets, (3) Faster closing - most paperwork already done, close in 30 days vs 45-60, (4) Negotiating power - sellers know you can secure financing, (5) Rate locks - some lenders let you lock rates during pre-approval. Get pre-approved with 2-3 lenders to compare rates and terms. Pre-approval is valid 60-90 days.

Real Estate Affordability Calculator

Calculate how much house you can afford based on your income and debts

Income & Debts

Annual Gross Income

$30K$6,667 /mo$300K

Monthly Debts (car, credit cards, loans)

$0$5,000

Down Payment

Down Payment Percentage

3%50%

Loan Parameters

Interest Rate

3%12%

Loan Term

Maximum Home Price

Recommended: $0

Monthly Payment$0

Loan Amount$0

Down Payment$0

Cash Needed$0

Debt-to-Income Ratios

Front-End DTI (housing only):0.0%

Back-End DTI (all debts):0.0%

Monthly Payment Breakdown

Key Details

Principal & Interest$0

Property Tax$0

Home Insurance$150

Monthly Payment

Term

30yr

Rate

7.00%