How lenders decide what you can afford
The price tag on a house isn't where a lender starts. They start with your debt-to-income ratio (DTI) — how much of your monthly income already goes to debt — and work out how big a payment you can add on top. The standard yardstick is the 28/36 rule:
- 28% — the front-end ratio. Your monthly housing payment should stay under 28% of your gross (pre-tax) monthly income.
- 36% — the back-end ratio. All your monthly debt payments together — the new housing payment plus car loans, student loans and minimum credit-card payments — should stay under 36%.
Whichever limit you hit first is your ceiling. If you have little other debt, the 28% housing cap usually binds. If you're carrying a big car payment and student loans, the 36% total cap takes over and shrinks your budget. Some loan programs allow higher back-end ratios — 43%, sometimes up to ~50% — but stretching that far leaves you "house poor," with little room for anything else.
What "the payment" actually includes
A common mistake is to think only about loan repayment. The payment lenders cap is the whole PITI:
- Principal and Interest — repaying the mortgage itself.
- Taxes — property tax, often 1–2% of the home's value per year.
- Insurance — homeowners insurance.
- Plus HOA dues (for condos/planned communities) and PMI — private mortgage insurance, required when you put less than 20% down.
This matters because taxes, insurance, HOA and PMI all eat into the same capped payment. A home in a high-tax county, or one with steep HOA fees, leaves less room for principal and interest — so the price you can afford is lower, even at the same income.
What different incomes can buy
Here's a rough guide using the 28/36 rule with realistic assumptions (a 6–7% rate, ~1.1% property tax, modest other debts, and a 10–20% down payment). Treat these as ballparks — your real number depends on your down payment, debts and rate, which is exactly what the calculator solves for.
| Annual income | Rough affordable home price |
|---|---|
| $50,000 | ~$170,000 – $210,000 |
| $60,000 | ~$200,000 – $240,000 |
| $80,000 | ~$260,000 – $310,000 |
| $100,000 | ~$330,000 – $390,000 |
| $150,000 | ~$500,000 – $580,000 |
Reading it the other way — the income you'd typically need for a given home, with a solid down payment and limited other debt:
- $300,000 house → roughly a $75,000–$90,000 income.
- $400,000 house → roughly a $100,000–$130,000 income.
- $500,000 house → roughly a $130,000–$160,000 income.
See your exact number
Enter your income, debts, down payment and rate to get the home price you can afford — and the payment behind it.
The stricter rule: Dave Ramsey's 25%
Lender limits tell you the most you can borrow. Plenty of advisors argue you should aim lower. The best-known stricter guideline is Dave Ramsey's: keep your monthly mortgage payment to no more than 25% of your monthly take-home (net) pay, on a 15-year fixed-rate loan, with at least 10–20% down.
It's deliberately conservative — net pay instead of gross, a shorter term, and a tighter percentage — so it lands on a noticeably smaller house than the 28/36 rule. The payoff is a paid-off home in 15 years and lots of monthly breathing room.
Neither rule is "right." The 28/36 rule is what gets you approved; Ramsey's is what keeps the payment comfortable. Many buyers land somewhere in between — qualifying under 28/36 but choosing to spend closer to the conservative number.
What raises or lowers your budget
- Down payment. Money down is money you don't borrow, so it adds straight to the price — and crossing 20% drops PMI, freeing up payment for principal and interest.
- Existing debt. Car loans, student loans and card minimums count against the 36% cap. Paying down a car loan before you shop can lift your budget more than you'd expect.
- Interest rate. A higher rate sends more of each payment to interest, so the same budget buys a smaller loan.
- Taxes, insurance and HOA. All part of the capped payment — higher here means lower price.
- Loan term. A 15-year loan has a bigger payment than a 30-year, so it qualifies you for less house (but saves a fortune in interest).
- Credit score. Drives both your rate and your PMI cost, which loop back into affordability.
Before you shop
Two practical moves. First, get pre-approved — a lender verifies your income and credit and gives you a real number to shop with, which also makes your offers stronger. Second, don't anchor on the maximum. The approval is a ceiling, not a target; leaving margin covers maintenance, furniture, emergencies and the rest of your goals. A house you can comfortably afford beats the biggest one you can technically qualify for.