How Much House Can I Afford

The How Much House Can I Afford Calculator works backwards from your income: it takes the share of gross monthly income you allocate to housing (28% by default), subtracts your existing monthly debts, and converts the remaining payment into the largest loan it supports at your rate and term, then adds your down payment to give the maximum home price. It is a lender-style ceiling, computed exactly, which you should then discount by your own judgment.

How It Works

$\text{Max monthly payment}=\frac{\text{Annual income}}{12}\times\text{Housing ratio}-\text{Monthly debts}$

$\text{Max loan}=\text{Max payment}\times\frac{1-(1+r)^{-n}}{r},\qquad r=\frac{\text{Annual rate}}{12},\ n=\text{Years}\times 12$

The payment the formula sizes is the principal-and-interest payment; the model treats the whole affordable payment as available for principal and interest, an assumption the reading section below examines.

Parameters

| Input | Required | Meaning | |---|---|---| | Annual income | Yes | Gross (pre-tax) household income | | Monthly debts | Yes | Car loans, student loans, card minimums, other recurring debts | | Down payment | Yes | Cash available upfront | | Rate / term | Yes | The mortgage you realistically face | | Housing ratio | No | Default 28% of gross income |

Worked example

Income of $120,000 gives a gross monthly income of$10,000. At the default 28% ratio the housing budget is $2,800; subtract$500 of monthly debts and the maximum principal-and-interest payment is **$2,300**. At 7$150.31 of loan, so the maximum loan is about **$345,707**, and with a$70,000 down payment the maximum home price is about **$415,707**. Now stress it: at 8$313,500 of loan, and the ceiling falls by roughly $32,000 without income changing at all, which is why affordability answers expire with rate movements and why quoting one without its rate and term is meaningless.

The 28% rule, its 36% sibling, and what lenders actually do

The housing ratio descends from the traditional 28/36 guideline: housing costs at most 28% of gross income, all debts at most 36%. This calculator implements a stricter blended version, charging your other debts against the housing allowance dollar for dollar, so a household with heavy car payments gets a materially lower housing budget, as prudence dictates. Real underwriting differs in both directions: automated systems approve total debt ratios well into the 40s for strong files (the ceiling is a risk decision, not a comfort recommendation), while this calculator's assumption that the entire payment can go to principal and interest cuts the other way, because in reality property tax, homeowner's insurance, and PMI or HOA fees also draw on that monthly budget. On the worked example, $500 a month of tax and insurance would reduce the supportable loan by about$75,000. Use the Mortgage Calculator on this site with real tax and insurance figures to convert this ceiling into a payment you can actually sign.

The debts input is doing quiet, important work

Two households with identical incomes and different debts get different answers here, correctly: a $700 car payment is housing capacity already spent. Lenders count debts by their contractual payments (card minimums, not balances; student loans by their assessed payment), and you should enter yours the same way for a comparable result. Debts you are about to extinguish are the highest-leverage affordability move available: clearing a$500 monthly payment adds roughly $75,000 of loan capacity at the example's rate, frequently more than the same cash added to the down payment, and it improves the debt ratios lenders see at the same time.

What "afford" should mean after the calculator

The output is the maximum a ratio tolerates, not a target. Households that buy at their ceiling commonly discover the unmodeled costs: maintenance at roughly 1% of value a year, furnishing, commuting changes, childcare, and the simple fact that a payment set as 28% of gross can consume 40% or more of take-home pay in high-tax situations. A defensible personal method: take the calculator's price, then run the Mortgage Calculator's full monthly total (with tax, insurance, HOA) against your actual take-home pay and your actual life, and lower the price until the payment leaves your savings rate intact. The rate you can get also depends on credit score and loan type in ways this single-rate model does not differentiate.

Limitations

A ratio model on gross income: it does not verify income as a lender would (bonuses, self-employment, and rental income are all treated specially in underwriting), does not include property tax, insurance, PMI, or HOA in the payment it sizes, does not model closing costs against your cash, and applies one rate regardless of credit profile or loan program. It estimates a ceiling for planning; a lender's pre-approval and your own budget both get a vote after it.

Frequently Asked Questions

Should I buy at the maximum price shown?

Almost never. The maximum is where the ratio binds, built on the generous assumption that the whole payment serves the loan. Treat it as the top of the search range and let the full-cost payment test against take-home pay set the real budget below it.

Why does the calculator subtract debts from the housing budget?

Because debt payments are claims on the same income. The 28/36 tradition caps total obligations; this model enforces it by reducing housing room by every dollar already committed, which is why clearing a car loan before buying expands capacity so sharply.

Does a bigger down payment always beat paying off debts?

Not on capacity: at the example rate, $10,000 of down payment adds$10,000 of price, while removing a $500 monthly debt adds about$75,000 of loan capacity, though it consumes cash you may need for closing and reserves. The right order depends on your cash position, and both moves also affect the rate and PMI you are offered.