What to enter
- Gross annual household income
- Income before taxes, from all borrowers who will be on the loan. Lenders qualify you on gross, not take-home, income. Include only income that is stable and documentable, such as salary, regular overtime with a history, or reliable self-employment income averaged over time.
- Other monthly debt payments
- Minimum payments on car loans, student loans, credit cards, personal loans and similar obligations. Do not include rent you will stop paying, utilities or groceries, and do not include the new mortgage, which the calculator adds itself.
- Down payment available
- Cash you can put toward the purchase after setting aside money for closing costs and reserves. If it covers more than the price found, the calculator assumes no mortgage.
- Interest rate and loan term
- Use a current quote. Rates move the answer a lot, so try a point higher and lower.
- Housing cost assumptions
- Property tax and insurance are entered as yearly percentages of the price because the price is what the calculator is solving for. HOA dues are a monthly dollar amount. PMI applies when the down payment is under 20% of the price.
- Debt-to-income limits
- The share of gross income you want, or a lender is willing, to devote to housing and to all debts. The defaults are the traditional 28% and 36% guideline. Raise or lower them to see the effect.
How to read your results
The main figure is the highest home price at which the estimated monthly housing payment stays within both limits. Below it you will find the loan amount and down payment used at that price, the payment broken into principal and interest, property tax, insurance, HOA and PMI, and the two ratios at that price. The line Limit that set the ceiling tells you which constraint bound. If the total-debt limit is the binding one, paying down other debts will raise your budget. If the housing limit is binding, only a higher income, a bigger down payment, a lower rate or a higher ratio limit will.
The scenario table repeats the calculation with a cautious, a traditional and a stretch pair of ratios, using your other inputs. It is a comparison tool, not a recommendation: the right limit depends on your savings, job stability and other obligations.
How the estimate works
Two debt-to-income ratios are common in mortgage lending. The front-end ratio is the housing payment divided by gross monthly income. The back-end ratio is the housing payment plus all other monthly debt payments, divided by gross monthly income. The calculator finds the largest monthly housing payment that satisfies both:
front-end limit × monthly income
back-end limit × monthly income − other debtsMonthly income is gross annual income ÷ 12.
Then it finds the price whose full payment equals that ceiling. Because the payment depends on the price in several ways at once (the loan amount changes, property tax and insurance scale with the price, and PMI switches on below 20% down), there is no simple closed form. The calculator instead searches: it tries a price, computes the complete payment, and narrows the range until the payment matches the budget. The result is rounded to the dollar for display.
Worked example
$90,000 income, $400 in monthly debts, $40,000 down
Monthly gross income is $7,500. At 28% the housing ceiling is $2,100 a month. At 36% the total-debt ceiling is $2,700, and after subtracting $400 of other debts it leaves $2,300 for housing. The smaller figure, $2,100, is the budget.
At a 6.75% rate on a 30-year loan, with a 1.1% property tax rate and 0.35% insurance rate, the price that fits that budget is about $290,377. That leaves a loan of $250,377 and a total payment of $2,100.00, of which $1,623.94 is principal and interest. The binding constraint is the housing payment limit (28%).
Changing one input at a time shows what matters most. With the rate at 7.75% the estimate drops to $271,240, and at 5.75% it rises to $311,958. Raising other debts from $400 to $900 a month lowers it to $253,766. Raising the down payment from $40,000 to $80,000 lifts it to $340,365.
What lenders actually look at
Debt-to-income ratios are only one part of a mortgage approval. Underwriters also consider credit history and score, employment and income stability, the size and source of the down payment, cash reserves after closing, the loan type, and the appraised value of the property. A borrower with a strong record and large reserves may be approved at a higher back-end ratio than the 36% guideline, while a borrower with a thin credit file may be held to less. Different programs, including conventional, FHA, VA and USDA loans, set different limits, and automated underwriting can approve ratios that the traditional rule would not.
Approval is also not the same as affordability. A lender can approve you for a payment that leaves little room for savings, childcare, medical costs or the ordinary irregularity of income. The guideline ratios are measured against gross income, so the payment’s real weight in your budget is heavier than the percentage suggests once income tax and payroll tax are taken out. The take-home pay calculator translates a salary into an after-tax figure, which is the number to compare a payment against when you build a budget.
Cash you need beyond the down payment
The price a monthly budget supports is not the whole story, because buying takes cash. Plan for the down payment, closing costs (often a few percent of the loan), moving costs, immediate repairs or furnishing, and a reserve fund. Many buyers find the reserve is what keeps a purchase comfortable. If the down payment field holds every dollar you have, the true affordable price is lower than the calculator shows.
Also stress-test the payment. Ask whether you could still pay it if a partner’s income stopped, if property taxes rose after reassessment, or if insurance premiums jumped. A price that only works on the optimistic version of every assumption is not really within budget.
Assumptions and limits
This is a planning estimate. It uses one interest rate, one set of tax and insurance percentages and the ratio limits you enter, and it does not consider credit score, loan program rules, reserves or your other spending. Property taxes and insurance vary widely by location, so replace the defaults with local figures. The result is a maximum under the limits you chose, not a target, and many buyers are more comfortable well below it. To test a specific home, enter its price and terms in the mortgage calculator.
Frequently asked questions
What is the 28/36 rule?
It is a traditional guideline that housing costs should not exceed 28% of gross monthly income, and total monthly debt payments, including housing, should not exceed 36%. It is a starting point for planning, not a law or a promise of approval.
Is the answer what a lender would approve?
Not necessarily. Lenders may allow higher ratios with strong credit, reserves or a lower loan-to-value, and may approve less if other factors are weak. The calculator shows what the guideline ratios support, which is a useful planning number before you get a pre-approval.
Should I use gross or take-home income?
Lending ratios use gross income, so the calculator does too. For your own budget, compare the resulting payment with take-home pay, since that is what you have available to spend.
Why does a small change in interest rate change the price so much?
Because the rate sets the interest portion of the payment, and the payment budget is fixed. When the rate rises, the same payment supports a smaller loan. In the worked example, a one-point rate increase lowers the estimated price by roughly $19,000.
Does the estimate include closing costs?
No. Closing costs are paid in cash and are separate from the monthly payment. Set that money aside from your savings before deciding how much of it can go to the down payment.
Sources and further reading
- CFPB: Owning a Home Loan Estimate and Closing Disclosure explainers.
- IRS Publication 936: Home Mortgage Interest Deduction