Home Affordability Calculator

Determining your home buying power is more than just guessing a monthly payment. It's a precise calculation used by lenders to measure risk. Understanding the underlying formula—the Debt-to-Income Ratio (DTI)—is the key to shopping with confidence.

1. The Golden Rule of Lending: 28/36

While every lender is different, the industry standard for conventional loans is known as the "28/36 Rule." This rule consists of two separate ratios that you must satisfy:

2. Don't Forget "P.I.T.I." + M

Many first-time buyers only look at the mortgage principal and interest. This is a common oversight. True affordability is determined by P.I.T.I.+M:

• Principal & Interest: The loan repayment itself.
• Taxes: Property taxes can add hundreds of dollars to your monthly bill. Check local millage rates.
• Insurance: Homeowners insurance is mandatory for mortgages. In flood or fire zones, this can be substantial.
• Maintenance (The "+M"): Lenders don't count this, but you must. Budget 1% of the home's value per year for repairs. If you buy a $400k house, expect $4k/year in upkeep.

3. The 30% Rule vs. Modern Reality

Historically, spending 30% of your income on housing was the limit. However, in high-cost-of-living areas, buyers often stretch to 40% or even 45% (if lenders allow).

The Danger Zone: While a lender might approve you for a 43% DTI (common for FHA loans), being "house poor" means you have no money left for travel, retirement investing, or emergencies. Just because the bank says yes doesn't guarantee fits your long-term financial goals.