How Much House Can You Afford?

“How much house can I afford” almost always gets answered with a debt-to-income ratio, a lender’s shorthand for how much of your income can safely go toward debt payments each month, including the mortgage you’re about to take on.

Start with debt-to-income ratio

Lenders cap the share of your gross monthly income that can go toward total monthly debt, including your new mortgage payment. A common guideline is 36%, though many loan programs allow more, up to 43-45% in some cases.

Max Total Debt Payment = Gross Monthly Income x Target DTI
Max Housing Payment    = Max Total Debt Payment - Other Monthly Debt

Other monthly debt means everything besides the mortgage you’re solving for: car loans, student loans, credit card minimums, and similar recurring obligations. Whatever’s left after subtracting those is your housing budget: what you can spend on principal, interest, property tax, insurance, and HOA dues combined.

Why property tax makes this circular

A regular mortgage payment calculator solves one direction: given a loan amount, rate, and term, what’s the payment? Home affordability runs the other way: given a payment budget, what’s the largest loan (and home price) that fits? That’s already a bit more work, but property tax adds a real wrinkle: it’s charged as a percentage of the home’s price, and the home’s price is exactly what you’re trying to find.

Raise the home price, and both the loan payment and the property tax bill go up together. There’s no single algebraic step that isolates “home price” on one side of an equation when one of the costs scales with the very number you’re solving for.

Solving it by search instead

The fix is straightforward even without a closed-form formula: the total monthly cost of owning a home (principal and interest, plus tax, insurance, and HOA) only goes up as home price goes up, it never goes down. That means you can search for the price: try a price, see if the total monthly cost is above or below your budget, and narrow the range until it lands almost exactly on budget. This is exactly what the Home Affordability Calculator does behind the scenes, converging on the answer to the cent in a fraction of a second.

Worked example

Take $90,000 in gross annual income, $400 a month in other debt, a $40,000 down payment, a 6.5% rate on a 30-year loan, 1.1% property tax, $1,800 a year in insurance, no HOA, and a 36% target DTI.

• Gross monthly income: $90,000 / 12 = $7,500
• Max total debt payment: $7,500 x 36% = $2,700
• Max housing payment: $2,700 - $400 = $2,300
• Solving for the price whose principal, interest, tax, and insurance add up to $2,300/month gives a maximum home price of $332,003.87
• That implies a $292,003.87 loan, a $1,845.66 principal-and-interest payment, and $304.34 a month in property tax, which together with the $150 monthly insurance land exactly at the $2,300 budget

What this doesn’t include

• PMI. A down payment under 20% typically means private mortgage insurance on top of everything here, which would lower the real maximum price you can comfortably afford.
• Your own comfort level. The maximum a lender’s DTI guideline allows and the amount you actually want to commit to every month aren’t the same thing; many buyers deliberately target well under their approved maximum.
• Rate and price changes. A different rate, a different loan term, or a change in your other debts all shift the result, since everything here is interconnected.

FAQ

Why not just use a fixed percentage of income as a shortcut? Because property tax, insurance, HOA dues, and your existing debt all vary independently of your income, a fixed percentage shortcut misses real differences between two buyers with the same income but different debt loads or different property tax rates.

Does a bigger down payment always mean a bigger max home price? Yes, directly. A bigger down payment lowers the loan amount needed for any given home price, which lowers the principal-and-interest portion of the payment and leaves more of your housing budget available to support a higher price.

Use the Home Affordability Calculator to run your own numbers.