How Much Mortgage Can I Afford? Income to Price

Short answer: Work from gross monthly income to a housing payment, subtract taxes, insurance and any mortgage insurance, convert the remaining principal and interest into a loan at your rate and term, then add your down payment. On the illustrative $102,000 household here, the 28 percent test supports a price near $355,600, the 36 percent test near $328,700, and a third commonly quoted reference near $422,800. The reference ratio, not the income, is the widest variable.

How much mortgage can I afford is a question with an arithmetic answer, and the arithmetic runs in one direction: from your income and your obligations to a monthly housing payment, from that payment to a loan amount, and from that loan plus your cash to a purchase price. Nothing in that chain requires a lender’s opinion, and every step of it is reproducible on a calculator in about ten minutes. What the arithmetic will not do is tell you which reference ratio to apply, and that single choice moves the answer by tens of thousands of dollars.

This breakdown runs the whole chain on one openly stated illustrative household, tests it against the three references people actually quote, and then prices every lever that moves the result: your other monthly debts, the rate, the property’s own bills, the mortgage insurance premium, the term, and the cash you have. Run your own version alongside the reading in the companion calculator on this page, and if you want the ratio mechanics in isolation, our debt-to-income breakdown takes both ratios apart line by line.

How much mortgage can I afford, in one calculation

The full calculation is four steps and no more than that. First, take your gross monthly income, before tax and before any deduction, because every reference ratio in mortgage lending is stated against gross rather than take-home. Second, apply a reference percentage to get the total monthly housing payment the test allows. Third, subtract the parts of that housing payment that are not the loan: property tax, homeowners insurance, any association dues, and any mortgage insurance premium. What remains is the principal and interest you can carry. Fourth, convert that principal and interest figure into a loan balance using the amortization formula at the rate and term you expect, then add your down payment to get a purchase price.

That is the entire mechanism, and it is worth holding in mind because almost every disagreement about affordability is really a disagreement about one of the inputs rather than about the method. Two people can run the same four steps on the same income and land $90,000 apart because one applied 28 percent and the other applied 43, or because one used a $300 tax and insurance estimate and the other used $600. The arithmetic is not where the uncertainty lives.

The other thing the four steps make visible is which levers are big and which are small. Anything that changes the principal and interest allowance gets multiplied by the amortization factor, which on a 30-year term at the illustrative rate used here is a little over 158. A dollar a month of association dues therefore costs about $158 of purchase price. A dollar of down payment costs a dollar. That ratio of roughly 158 to 1 explains most of what follows.

The short answer on an illustrative $102,000 income

Here is the chain run end to end so you can see the shape before the detail. The household earns $8,500 a month gross, which is $102,000 a year. They pay $850 a month toward other required debts. Property tax and homeowners insurance on the sort of property they are looking at are modeled at a placeholder of $480 a month. The illustrative rate is 6.5 percent on a 30-year fixed term, and they have $55,000 set aside for a down payment.

Applied against the 28 percent housing reference, their allowance is $2,380 of total housing payment. Take out the $480 placeholder and $1,900 is left for principal and interest, which supports a loan near $300,600 and, with the down payment added, a price near $355,600.

Applied against a 36 percent all-obligations reference, the picture tightens. That test allows $3,060 of total monthly obligations, and their $850 of other debt comes out first, leaving $2,210 for housing. After the placeholder, $1,730 goes to principal and interest, supporting a loan near $273,700 and a price near $328,700.

Applied against a more permissive 43 percent reference, it loosens. That allows $3,655 in total, $2,805 for housing, about $2,325 for principal and interest, a loan near $367,800 and a price near $422,800.

Where every figure on this page comes from

None of the local inputs to an affordability calculation are knowable from a webpage, so everything numeric in this breakdown runs off the one model just described, stated openly so you can see exactly what it is and is not. The income is $8,500 a month gross. The other required monthly debt payments are $850. The property tax and homeowners insurance placeholder is $480 a month combined. The rate is an illustrative 6.5 percent and the term is 30 years unless a section says otherwise. The cash earmarked for the down payment is $55,000.

Two clarifications matter. The 6.5 percent is a round number chosen so the arithmetic stays legible and the relationships come out the right shape. It is not a rate sheet, not a market reading, and not a prediction. The $480 tax and insurance figure is not a percentage of any purchase price and is not a claim about what any property costs to own; it stands in for two amounts that arrive on a local assessment and an insurer’s quote, both specific to one address. Wherever a dollar figure appears below, in the body, in either chart, in the worked example, in the companion tool or in the questions at the top, it came out of this same model.

The reference ratios get the same treatment. The 28, 36 and 43 percent figures are reference points that circulate widely in mortgage discussion. They are not statutes, not universal underwriting rules, and not thresholds any particular lender is obliged to apply. They are used here because running the same file against all three is the clearest way to show how much of the answer is a choice rather than a calculation.

The two ratios that decide the number

Lenders look at your income through two ratios, and knowing which one is binding on your file tells you which lever to pull. The front-end ratio compares the proposed total housing payment alone to gross monthly income. The back-end ratio compares every required monthly debt payment, the proposed housing payment included, to the same gross income. The 28 percent reference belongs to the front end; the 36 and 43 percent references belong to the back end.

Which one binds depends entirely on how much other debt you carry. A household with no car payment, no student loan and no card minimums will usually find the front-end test binding, because with nothing else in the numerator the back-end test is simply more generous. A household with meaningful monthly obligations will usually find the back end binding, because those obligations are subtracted before anything is left for housing. On the model used here the back-end test at 36 percent is the tightest of the three, which is why $328,700 is the conservative answer.

Read that last segment carefully, because it is where the reference ratios are quietly optimistic. The 62 percent is gross income, not money in your account. Income tax, payroll deductions, retirement contributions and health premiums all come out of it before groceries, childcare, transport, savings or a single repair. A test stated against gross income cannot see any of that, which is why clearing a ratio and affording a payment are different achievements.

The 28 percent test, housing only

The front-end test is the simpler of the two and the one worth running first, because it isolates the question you actually care about: what share of what you earn do you want the house to consume. Multiply gross monthly income by 0.28 and you have the total housing payment the reference allows. On $8,500 that is $2,380.

The word “total” is doing the work. The figure has to cover principal, interest, property tax, homeowners insurance and, where they apply, association dues and a mortgage insurance premium. Quoting only principal and interest against a 28 percent test is the single most common way people overstate what they can afford, and it is an easy mistake to make because principal and interest is the only piece anyone can compute for you. Our PITI breakdown sets out the four components and why the difference between them is not small.

There is nothing sacred about 28. It is a conservative benchmark that leaves a wide margin, and households buy comfortably above and uncomfortably below it all the time. Its real value is as a starting point you then adjust deliberately: if you want to go above it, decide what you are cutting to make room, rather than discovering later that the answer was your savings rate.

The 36 and 43 percent tests, everything counted

The back-end test asks a broader question, and it is closer to what a lender actually evaluates. Add every required monthly debt payment to the proposed housing payment and compare the total to gross monthly income. The car finance, the student loan, the personal loan, the minimum on each card and any court-ordered payment all count. Utilities, insurance premiums not attached to the mortgage, groceries and childcare generally do not, which is one reason a ratio can look healthy while a budget does not.

On the model here, a 36 percent reference allows $3,060 of total obligations. The $850 of other debt is subtracted first, leaving $2,210 for the entire housing payment. A 43 percent reference allows $3,655, leaving $2,805. The gap between those two housing allowances is $595 a month, which at the illustrative rate and term is worth about $94,100 of purchase price on the same income and the same cash.

Why the three references disagree by $94,000

Three references, one income, one set of debts, one rate, one pile of cash, and a spread of about $94,100 between the tightest and the loosest answer, in loan size and in the price that loan reaches. That spread is not a flaw in the arithmetic. It is the arithmetic faithfully reporting that how much mortgage you can afford, and how much house you can afford with it, are questions about risk appetite dressed up as questions about numbers.

What the chart does not show is that the three prices carry very different consequences. At the bottom of the range the household has room for a bad quarter, a reassessment and a boiler. At the top of the range the same household is fine as long as nothing at all goes wrong. Both are the same house-buying transaction on paper. Only one of them survives contact with an ordinary year.

The practical move is to run all three, then choose deliberately rather than default to whichever number a lender or a listing site put in front of you first. Drop your own income, debts and cash into the companion calculator on this page and it reports all three at once.

Turning a monthly payment back into a purchase price

The conversion from a monthly payment to a loan balance is the one piece of the chain that needs a formula rather than arithmetic. A fixed-rate loan is a level payment that retires a balance over a fixed number of months, so the balance a given payment supports is the payment multiplied by an annuity factor built from the monthly rate and the number of months.

The factor is one minus one-plus-the-monthly-rate raised to the power of minus the number of months, all divided by the monthly rate. At 6.5 percent over 30 years the monthly rate is 0.065 divided by 12, and the factor works out at about 158.21. That number is worth remembering for the length of a house search, because it converts monthly dollars into loan dollars in one step: $1,730 a month of principal and interest multiplied by 158.21 is a loan near $273,700.

Two properties of the factor explain a lot. It falls as the rate rises, which is why a higher rate shrinks the price your payment supports. And it falls sharply as the term shortens, from about 158 at 30 years to about 115 at 15 years on the same illustrative rate, which is why a shorter term buys much less house for the same monthly outlay. Our amortization breakdown works through where the formula comes from and what it does to the balance over time.

What counts as income, and what a lender will not use

The income at the top of the chain is not simply what you earn; it is what a lender can document and is willing to count, and the gap between those two is where a lot of affordability estimates fall apart. Salary from a stable job with pay stubs and W-2 history is the straightforward case. Beyond that, the general principle is that income has to be both documentable and reasonably expected to continue, and the further your pay pattern sits from a fixed salary, the more history is usually required.

Bonus, commission and overtime typically need a track record before they can be averaged in, and self-employment income is usually assessed from tax returns after business deductions rather than from gross receipts, which regularly produces a qualifying figure well below what a self-employed borrower thinks of as their income. Rental income, investment income and support payments each have their own documentation conventions. The exact requirements vary by lender and by program and they change, so the honest instruction is to ask a licensed lender what your particular pattern will be credited at rather than to assume.

That question is worth asking early, because it is the input everything else multiplies. If your documentable income comes in 10 percent below your actual income, every price figure in your search comes down by roughly the same proportion, and it is better to learn that before you fall for a house than after.

Which monthly debts eat into the price

On the back-end test, your existing monthly payments are subtracted from the allowance before housing gets anything, so they translate directly into purchase price you cannot reach. What counts is the required monthly payment, not the balance, which produces some results that feel backwards at first.

A $28,000 car loan with a $520 monthly payment weighs far more on the ratio than a $40,000 student loan on an income-driven plan with a $110 payment, even though the second balance is larger. A card with a $9,000 balance and a $180 minimum weighs less than a $600 personal loan payment on a much smaller balance. The ratio is a cash flow test, not a net worth test, and it prices the claim on your monthly income rather than the debt behind it.

This is also why paying a balance down without removing the payment usually moves nothing. Halving a car loan balance while the contract keeps taking $520 a month leaves the ratio exactly where it was. Retiring the loan entirely removes $520 from the numerator and, at the factor above, adds roughly $82,300 of purchase price. Our debt-to-income breakdown goes through which obligations count, which do not, and which are commonly miscounted in both directions.

What $100 a month of debt costs in purchase price

The conversion is worth stating on its own because it reframes every borrowing decision made in the years before a purchase. Under a back-end test, each $100 of required monthly debt payment removes $100 from the housing allowance, and $100 of housing allowance is $100 of principal and interest, which at the illustrative factor of 158.21 is about $15,800 of loan and therefore about $15,800 of purchase price.

So the $850 of monthly obligations in the model is holding down roughly $134,500 of purchase price. That is the difference between the $328,700 that the 36 percent test allows with the debts in place and the $463,200 it would allow with none. It is the same household, the same income and the same cash on both sides of that gap.

Two cautions keep this honest. The conversion only applies where a back-end test is binding; under a pure front-end test the other debts do not enter the numerator at all, though they still come out of the same paycheque. And the cash used to clear a balance is cash that leaves the down payment, so the net effect on price is the $15,800 per $100 of payment removed, less whatever you spent to remove it. Retiring a small balance with a large payment is efficient. Retiring a large balance with a small payment is usually not, at least not for this purpose.

Property tax, insurance and association dues take their cut first

Everything between the housing allowance and the principal and interest allowance is a subtraction, and these are the subtractions. Property tax comes from a local assessment multiplied by the rates of whichever jurisdictions overlap the parcel, which can include a county, a city, a school district and various special districts. Homeowners insurance comes from an insurer underwriting one structure: its age, its roof, its construction, its distance from water and from a fire service, its claim history and the deductible you choose. Association dues, where a property has them, come from a budget set by that association.

None of the three is derived from the purchase price, which is why the common shortcut of estimating taxes as a flat percentage of price produces such unreliable affordability figures. Two houses at the same price in different jurisdictions can carry monthly tax bills hundreds of dollars apart, and that difference lands entirely on the price you can support. On this model, a $200 a month swing in the tax and insurance line is worth about $31,600 of purchase price.

Association dues deserve a particular warning because buyers routinely leave them out of the affordability calculation and then discover them at contract. Adding $200 a month of dues to a household already limited to $2,210 of total housing payment cuts the principal and interest allowance to $1,530, the loan to about $242,100 and the price to about $297,100. The building has not changed. The number you can offer has, by about $31,600.

The practical method for the first two takes ten minutes each. Pull the actual annual tax figure for the specific address from the assessor’s record or the listing’s tax history and divide by twelve. Get a real insurance quote on the specific address and divide by twelve. Then replace the $480 placeholder with your own number. Our escrow account breakdown covers how a servicer collects and holds those two amounts once you own the place, and our breakdown on why a mortgage payment goes up covers what happens when they move.

Mortgage insurance and a thin equity cushion

Where the down payment is a small share of the price, a lender generally prices the extra exposure, most often by requiring a mortgage insurance premium that rides along inside the monthly payment. That premium is a fifth line in the housing total, and on a qualifying test it competes with principal and interest for the same fixed allowance.

Work it through on the model. The 36 percent test leaves $2,210 for housing. After the $480 tax and insurance placeholder, $1,730 supports a loan near $273,700. Add an illustrative $130 a month premium and only $1,600 is left for principal and interest, supporting a loan near $253,100. The premium costs about $20,600 of borrowing capacity while it lasts, on top of being money that protects the lender rather than building your equity.

Where the equity cushion has to sit before that charge stops, and whether it drops automatically or has to be requested, are set by the loan program, the investor behind it and the documents you sign, not by a single universal threshold anyone can publish. Our breakdown on getting rid of PMI walks the removal routes and our loan-to-value breakdown covers the ratio the whole question turns on. Ask a licensed lender which rule applies to the specific program you are considering before you plan around one.

What one percentage point of rate is worth in purchase price

Rate does not change your housing allowance at all. It changes how much loan that allowance buys, through the annuity factor, and the effect is large. Holding the binding $1,730 of principal and interest constant and moving only the illustrative rate:

Across that illustrative ladder the same monthly payment buys about $86,500 less house at 8 percent than at 5. Each full point is worth roughly $24,000 to $34,000 of purchase price, with the effect largest at the low end of the ladder and shrinking as the rate rises.

The rate you are actually offered is shaped by durable things: your credit file, the loan-to-value after your down payment, the loan type and term, and the property type. It is also the one input in the whole chain you can shop for, which is why collecting quotes from several lenders on the same day is worth more effort than almost anything else in a purchase. Our breakdown on getting the best mortgage rate covers what moves a quote and what does not, and our Loan Estimate breakdown covers how to compare offers on total cost rather than headline rate.

How much mortgage can I afford by income

The mortgage a given salary supports scales with the salary, but not in exact proportion, and running the same method across a ladder of incomes shows the shape of the relationship. Each row below applies the 28 percent front-end test only, keeps the $480 tax and insurance placeholder, uses the illustrative 6.5 percent over 30 years, assumes $55,000 of down payment, and assumes no other monthly debt at all. That last assumption is why these figures sit above what most real files support: add obligations and a back-end test, and every row comes down.

Notice that the price does not scale in exact proportion to income. The $480 placeholder is subtracted first and does not grow with earnings, so at low incomes it consumes a much larger share of the allowance. At $60,000 the placeholder eats about a third of the housing allowance; at $150,000 it eats under a seventh. That is the arithmetic behind a familiar frustration: fixed property costs weigh hardest on the smallest budgets.

For a sense of what these loan sizes look like as monthly payments in isolation, our tier breakdowns run the same amortization formula on round balances: the $300k rundown, the $400k rundown and the $500k rundown.

The down payment is not the only cash you need

Every price figure so far has added $55,000 of down payment to the loan, which quietly assumes that the $55,000 is available for the down payment specifically and that nothing else at closing needs cash. Neither assumption usually holds, and this is where affordability estimates most often break in practice.

There are three separate cash requirements. The down payment is the first and the largest. Closing costs are the second, covering lender fees, third-party fees, title work, recording, prepaid interest and the initial funding of an escrow account for taxes and insurance; treated illustratively at 3 percent of price on this model, that is about $9,900 on a $328,700 purchase. Reserves are the third: cash a lender may want to see remaining after closing, and cash you want regardless, because moving into a house you have just emptied every account to buy is how a small repair becomes a debt. Three months of the $2,210 housing payment is about $6,600.

Added up, the illustrative $328,700 purchase needs roughly $71,500 of cash rather than $55,000. If $55,000 is genuinely all the cash there is, the price has to come down, and the next section runs that second pass. Our closing disclosure breakdown covers the document that states the real figure three days before you sign.

The second pass, when the cash is the binding limit

When total cash rather than monthly payment is the constraint, the calculation has to run again with the down payment as an unknown. The loan is still capped by the payment at about $273,700. The cash has to cover the down payment, the closing costs at an illustrative 3 percent of the final price, and the reserve. Because closing costs follow the price, the arithmetic loops once: solve for a price where the down payment plus three percent of that price plus the reserve equals the $55,000 available.

On this model that lands at a price near $312,700, made up of a down payment near $39,000, closing costs near $9,400 and a reserve of about $6,600. The payment-based ceiling was $328,700; the cash-based ceiling is about $16,000 lower, and the cash-based one is the real one.

There is a second consequence. A $39,000 down payment on a $312,700 price is a cushion of about 12.5 percent, thin enough that a mortgage insurance premium very likely applies. Feed the earlier $130 illustrative premium back into the housing allowance and the loan capacity falls again, to about $253,100, pulling the price down with it. Each pass tightens the answer, which is exactly why an affordability figure produced in a single pass tends to be optimistic. If a low down payment is where your file lands, our piggyback loan breakdown covers one of the structures used to handle a thin cushion, and its own trade-offs.

What a 15-year term does to the number

A shorter term is often recommended as the disciplined choice, and on total interest it is. On affordability it is punishing, because the annuity factor collapses. At the illustrative 6.5 percent the factor falls from about 158.21 over 30 years to about 114.80 over 15.

Run the binding case through both. The same $1,730 of monthly principal and interest supports about $273,700 over 30 years and about $198,600 over 15. With the $55,000 down payment that is a price of about $328,700 against about $253,600, a difference of roughly $75,100 of house for an identical monthly outlay.

That is the trade in its bluntest form: the 15-year term buys far less house and costs far less interest, and which side of it you want is a genuine decision rather than a solved problem. Our 15 versus 30 year breakdown runs both sides properly, including the middle path of taking the longer term and paying extra voluntarily, which keeps the lower required payment while capturing much of the interest saving.

What a lender approves and what you can actually afford

A preapproval letter states a maximum. It is calculated from documented income, reported obligations, credit history and the lender’s own overlays, and it answers one question: how much is this lender currently willing to lend against this file. That is a useful number and it is not your budget.

The reason is structural rather than a criticism of lenders. The ratio counts required debt payments and ignores everything else that comes out of the same money: childcare, tuition, medical costs, retirement contributions, the commuting pattern the house implies, the savings rate that lets you sleep, and the fact that a commission-heavy income averages well but arrives unevenly. None of that appears anywhere in a qualifying calculation, and all of it appears in your account every month.

Buying at the ceiling has a quieter cost as well. A payment that consumes the top of your capacity leaves nothing to absorb a reassessment, an insurance renewal or a water heater, and it makes every later option worse, because refinancing, recasting or selling all take time you may not have. The practical move is to decide your own housing number first and ask for a letter at that figure. Most lenders will issue one at a lower amount on request, and it keeps the ceiling out of the negotiation. Our preapproval breakdown covers how the letter is produced, what it promises and what it does not.

Loan size limits and the ceiling above conforming

Above a certain loan size, a mortgage stops fitting the conforming category and is priced and underwritten differently, usually with tighter ratio expectations, more documentation, larger reserve requirements and its own rate. Where that boundary sits is set annually and varies by area, so the honest thing to say is that it exists and moves rather than to print a figure that would be wrong by the time you read it.

The practical effect on affordability is that the relationship between income and price is not perfectly smooth. A household whose calculation lands just above the boundary in their area may find the qualifying test tightens at exactly the point they cross it, which can make a slightly smaller purchase considerably easier to finance than a slightly larger one. Our jumbo loan breakdown covers how the line is drawn and what changes on the other side of it. Confirm the current limit for your county with a licensed lender before planning around a price near it.

Honest ways to raise the number

There are only five levers, and they are worth ranking by what they actually move rather than by how often they are recommended.

Removing a monthly debt payment is usually the largest and the fastest. Every $100 of required payment retired is about $15,800 of purchase price under a back-end test, and retiring a small balance carrying a large payment is the most efficient version of this by a wide margin.

Shopping the rate is second, and it is the one that costs nothing but a few hours. Between the best and worst quote a borrower collects on the same day there is often a real gap, and on this model a half point is worth roughly $15,000 of purchase price.

Adding cash is third and works dollar for dollar, with a bonus if the extra cash lifts the equity cushion past the point where a premium stops applying, since that frees the premium back into principal and interest.

Lengthening the term to 30 years, if you were considering 15, is fourth. It buys a great deal more house and costs a great deal more interest, and it should be a deliberate trade rather than a default.

Documenting more income is fifth and the slowest, because bonus, commission and self-employment income usually need history before a lender will average them in. Adding a co-borrower is a variant of this, and it brings their debts into the ratio along with their income, so it helps only if their income-to-debt balance is better than yours.

What is not on the list: raising your credit score does not change the ratio, though it can improve the rate, which is lever two by another route. And stretching the ratio itself, by finding a lender with a more permissive reference, raises the number a lender will approve without changing anything at all about what you can carry.

Mistakes that produce a wrong affordability figure

Quoting the payment as principal and interest only. This is the most common error and the largest. A test that caps the total housing payment has to include tax, insurance, any dues and any premium, and leaving them out overstates the price by tens of thousands.

Estimating property tax as a flat percentage of price. Tax follows the assessment and the local rates, not the price, and the shortcut can be wrong by hundreds of dollars a month in either direction. Use the actual tax record for the address.

Forgetting association dues. They are a required monthly housing cost, they enter the ratio, and on this model $200 of them costs about $31,600 of price.

Using net income instead of gross. Every reference ratio in mortgage lending is stated against gross monthly income. Applying 28 percent to take-home pay produces a number that is far too conservative, and mixing the two produces a number that means nothing.

Treating the preapproval maximum as a budget. Covered above, and worth repeating because it is the mistake with the longest tail.

Counting only the down payment as the cash requirement. Closing costs and reserves are real, and on this model they are the difference between a $328,700 ceiling and a $312,700 one.

Assuming a balance paid down is a payment removed. The ratio counts payments. A partial payoff that leaves the required payment in place moves nothing.

Ignoring what the house itself will cost to run. Maintenance, utilities on a larger space, and the repairs a former tenant never saw are outside every ratio on this page and inside every month of ownership.

A worked example, one household priced end to end

Assemble the whole model into one file. The household earns $8,500 a month gross, $102,000 a year. They carry $850 a month of required debt payments: a car at $520 and student loans at $330. They have $55,000 in cash. In the area they are searching, property tax and insurance together are modeled at $480 a month, and the illustrative rate is 6.5 percent over 30 years.

The 28 percent front-end test allows $2,380 of housing, so $1,900 of principal and interest, a loan near $300,600 and a price near $355,600. The 36 percent back-end test allows $2,210 of housing after the other debts, so $1,730 of principal and interest, a loan near $273,700 and a price near $328,700. The 43 percent reference allows $2,805 of housing, $2,325 of principal and interest, a loan near $367,800 and a price near $422,800. The tightest test binds, so their working ceiling is about $328,700.

Then the cash test bites. At that price they need roughly $9,900 of closing costs and want about $6,600 of reserve, leaving about $38,500 for the down payment out of the $55,000. Solving the loop properly puts the real ceiling nearer $312,700, with a down payment near $39,000. That cushion is thin enough that a premium of an illustrative $130 a month is likely, which would pull the supportable loan to about $253,100 and the price down again.

Three defensible responses open from here. They can search near $290,000 to $300,000, accept the premium, and keep the reserve intact. They can spend about eight months clearing the $520 car payment, which alone is worth roughly $82,300 of purchase price under the back-end test, and search higher afterwards with a smaller cash pile. Or they can hold the $55,000, keep renting for a year while adding to it, and buy with a thicker cushion and no premium. Run their file, or yours, in the companion calculator on this page and it reports all three ceilings side by side. You can also start from the payment end with our payment calculator.

Questions to ask a lender about your own number

Five questions get you further than any calculator, this one included.

Which ratio do you apply to my file, and at what percentage? The reference is the single widest variable in the whole calculation, and lenders differ.

What will you credit my income at? Especially where bonus, commission, overtime or self-employment is involved, the documented figure is often not the figure you think of as your income.

Which of my obligations are you counting, and at what monthly amount? Ask for the itemised list. Student loans on income-driven plans and cards with fluctuating minimums are counted differently by different programs.

What are you assuming for property tax, insurance and dues on the properties I am looking at? These are estimates until you have a specific address, and an optimistic estimate inflates the price range you are shown.

What reserves will you want to see after closing, and does that change with the down payment? This is the requirement most often discovered late.

The bottom line

How much house you can afford is two ceilings, and the lower one wins. The payment ceiling comes from your income, your other obligations, the reference ratio applied, the property’s own bills and the rate. The cash ceiling comes from what you have after closing costs and a reserve you should keep rather than spend. On the illustrative household here those two ceilings sit about $16,000 apart, and running only the first would have produced a figure the household could not actually close on.

Everything else is levers with known prices. About $15,800 of purchase price per $100 a month of debt retired. Roughly $24,000 to $34,000 per full point of rate. One dollar per dollar of extra cash. About $31,600 per $200 a month of association dues. Knowing those conversions is what turns a house search from a series of surprises into a set of choices, and it is worth more than any single number this or any other page could hand you. Take your own income, your own obligations, your own tax record and a real insurance quote to a licensed mortgage professional, and let the written Loan Estimate be the number you plan around.

RefiNook publishes educational breakdowns and is neither a lender, a broker, nor an advisor, so nothing above is mortgage, financial, or tax advice. The 28, 36 and 43 percent figures used throughout are reference points that circulate in mortgage discussion, not approval standards, not regulations, and not thresholds any lender is obliged to apply; the criteria that decide your file belong to the lender underwriting it. The 6.5 percent rate is an illustrative round number chosen to keep the arithmetic legible, and the $480 tax and insurance figure, the $130 premium and the 3 percent closing cost estimate are placeholders standing in for amounts quoted per property and per file rather than derived from any price. Where a loan limit, a premium removal rule or a program requirement would normally be stated, this breakdown points you to the current official figure and to your own loan documents instead. Confirm every line against the written disclosures you receive.

Edited by Hamza Hai, MBA · Editor

Hamza Hai is the editor of RefiNook. She holds an MBA and reviews the site's articles against our editorial standards, checking that every figure is labelled for what it is, that nothing is presented as verified fact without a source the reader can check, and that the writing stays useful to a non-specialist.

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