Comprehensive Guide
Learn more in our Loans & Mortgage Guide.
How it works
Lenders use two ratios to size mortgages. The front-end ratio keeps housing costs under 28% of gross monthly income; the back-end keeps housing plus all other debt under 36%. The calculator applies the tighter of the two: housing budget equals income divided by 12 times 28%, reduced by any other debt, then subtracts the monthly escrow (taxes plus insurance) to find what remains for principal and interest. That P&I budget inverts back through the mortgage formula into a loan amount, and the down payment is added to get the affordable price. The engine exposes the classic affordability trap: at 6.5% the payment-per-$100k is much higher than at 3%, so the same income affords roughly 25% less house than in a low-rate era. The ratios are guidelines, not law — high-income buyers often stretch to 40%, and lenders tighten when rates spike — but they are the number lenders start from.Formula
Front = income/12 x 28% | Back = income/12 x 36% - other debt | Budget = min(front, back) - escrow
Tips
- Size the budget on 28%, not the pre-approval letter's headline — that letter is the ceiling, not the target.
- Pay off car and card debt before applying: every $150 of monthly debt changes your price range by tens of thousands.
- Budget the move-in costs too — closing, movers and immediate fixes typically run 3-5% extra.
- Re-run this calculator with a 7.5% rate to stress-test whether the payment still fits.
Frequently asked questions
What is the 28/36 rule?
Keep housing costs under 28% of gross monthly income and total debt (housing plus everything else) under 36%. Lenders commonly allow up to 43% back-end with compensating factors, but the 28/36 guideline is the safe planning frame.
How much house can I afford on $100k a year?
Rough estimate at 6.5% with no debts: about $360,000-400,000 (28% front ratio, 20% down). The exact number from the calculator depends on your debts, down payment and local property taxes — run your real numbers, because escrow alone shifts the price by tens of thousands.
Should I include bonuses in income?
Only if they are predictable and documented — lenders want two years of consistent receipt. For planning, use your base salary plus the bonus figure you would bet on, and keep the mortgage payment serviceable on base alone.
What if my debts exceed the 36% back-end?
Pay down high balances first, extend the term, or reduce the price target. Even $5,000 of credit card debt at 25% APR takes roughly $150-250 of monthly payment that the back-end ratio counts against your housing budget.