Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A price range built from income, debt and down payment assumptions is a planning ceiling, not a promise of what a lender will actually approve. Real underwriting adds documentation requirements, credit history and specific loan-program rules that this kind of income-ratio estimate doesn't fully capture.
Before you rely on it
What to check
Treat the calculated range as a starting search budget and confirm it against an actual lender pre-approval before shopping seriously, since real underwriting can land somewhere different.
The common error
Where people go wrong with home affordability calculator
Shopping for homes at the very top of the calculated affordability range as if it were a guaranteed approval amount. Actual underwriting can approve for less, or require adjustments this simplified ratio-based estimate doesn't anticipate.
Sensitivity evidence
How mortgage rate changes the estimated affordable home price
| Mortgage rate | Estimated affordable home price | Maximum monthly housing budget |
|---|---|---|
| 4.5% | $530,408 | $2,150 |
| 5.5% | $473,327 | $2,150 |
| 6.5%worked example | $425,192 | $2,150 |
| 7.5% | $384,360 | $2,150 |
| 8.5% | $349,519 | $2,150 |
Every input, tested
Which input moves the estimated affordable home price most
| Input | Tested from | To | Estimated affordable home price at each end | Swing |
|---|---|---|---|---|
| Gross annual household income | $108,000 | $132,000 | $369,818 to $480,565 | $110,748 (26%) |
| Mortgage rate | 5.5% | 7.5% | $473,327 to $384,360 | $88,967 (21%) |
| Maximum housing ratio | 26.0% | 30.0% | $385,639 to $464,744 | $79,105 (19%) |
| Loan term | 22.0 years | 38.0 years | $376,961 to $453,906 | $76,945 (18%) |
| Monthly debt payments | $585 | $715 | $438,046 to $412,337 | $25,709 (6.0%) |
| Down payment | 18.0% | 22.0% | $414,821 to $436,094 | $21,273 (5.0%) |
Two variables at once
Estimated affordable home price by mortgage rate and gross annual household income
| Mortgage rate \ Gross annual household income | $96,000 | $120,000 | $144,000 |
|---|---|---|---|
| 4.5% | $392,255 | $530,408 | $668,561 |
| 5.5% | $350,042 | $473,327 | $596,612 |
| 6.5% | $314,444 | $425,192 | $535,939 |
| 7.5% | $284,248 | $384,360 | $484,472 |
| 8.5% | $258,482 | $349,519 | $440,557 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Gross annual household income | $120,000 |
| Monthly debt payments | $650 |
| Maximum housing ratio | 28.0% |
| Mortgage rate | 6.5% |
| Loan term | 30.0 years |
| Down payment | 20.0% |
| Estimated affordable home price | $425,192 |
| Maximum monthly housing budget | $2,150 |
Where the inputs come from
Use gross annual household income from before taxes, since lenders qualify you on it. Monthly debt payments are the minimums on car loans, student loans, cards and any other reported debt, not rent or utilities. The 28% ratio is the traditional cap for housing cost as a share of gross income, and 36% is the traditional cap for all debt combined. Down payment is a percentage of the price. Adjust the rate to what lenders are quoting for your credit.
Using the estimated affordable home price in a real decision
The lender may approve you for more than this figure, but the estimate here leaves room for maintenance, savings and a change in income, which approvals do not.
When the result stops applying
The ratios are guidelines, not laws. FHA and some conventional programs allow debt-to-income ratios well above 36% for strong borrowers, while a household with high childcare or medical costs may be strained at far less. The estimate does not include closing costs, moving costs or the reserves lenders may require after closing.
What to compare it with
Use the range as a search filter, not a target. Homes at the top of the range leave little room for maintenance and savings, and buyers who search at the top often regret it. Pair the result with the down payment calculator to see the cash you need and with the mortgage payment calculator for a specific listing. If a lender pre-approves you for more, remember that approval measures the lender's risk, and your budget should measure your own.
People also ask
Frequently asked questions
What is the 28/36 rule?
It says housing costs should stay under 28% of gross income and total debt under 36%. It is a conservative benchmark, and lenders may approve higher ratios.
Does income from two earners count fully?
Lenders use qualifying income from all borrowers on the loan, but each borrower's debts count too. A co-borrower with a large debt load can reduce what you qualify for.
How much does my credit score change the answer?
It changes the rate you are offered, and the rate changes the payment your income can support. Improving the score before applying can raise the affordable price.