How Much House Can I Afford Calculator: The Honest Version

The lender's pre-approval letter gives you the maximum they will lend. Financial wellbeing requires asking a different question: what is the maximum payment that leaves you with a comfortable life?

These are two very different numbers.

The Lender's Number vs. The Reality

Lenders calculate your maximum mortgage using:

• Gross income (before taxes)
• 28% front-end DTI limit for housing
• 43% back-end DTI limit for all debt

On $90,000 gross income ($7,500/month):

• Maximum PITI: $7,500 × 28% = $2,100/month
• Maximum total debt: $7,500 × 43% = $3,225/month
• If you have $500 in other debt: max PITI = $2,100 (binding front-end)

The lender says you can afford a payment up to $2,100. Is that comfortable?

Take-home pay at $90,000 (after 22% federal + 7.65% FICA + 5% state): approximately $5,400/month.

$2,100 PITI on $5,400 take-home = 38.9% of take-home.

Remaining after PITI: $3,300 for everything else.

After car insurance ($150), health insurance ($200), utilities ($200), groceries ($500), phone ($80), other essentials: roughly $2,170 left for childcare, entertainment, savings, emergencies, student loans, car payments, and everything else.

This person is technically qualified. Many months will feel tight.

The Actual Affordability Test

Step 1: Write down your monthly take-home pay.

Step 2: Subtract essential non-housing monthly expenses:

• Car payment(s) and auto insurance
• Health insurance premium
• Groceries (not dining out — survival budget)
• Utilities
• Phone
• Childcare (if applicable)
• Student loan minimum payments
• Other minimum debt payments

Step 3: What remains is your available housing budget — for PITI, plus home maintenance, home insurance not in escrow, and HOA.

Step 4: If the available number supports the home you want, you can genuinely afford it. If it does not, either the home price needs to come down or the non-housing expenses need to decrease.

The 25% Net Rule

A more conservative rule: keep your PITI below 25% of net take-home pay.

| Take-Home Income | 25% Rule (Max PITI) | Lender's 28% Gross Rule | |-----------------|---------------------|------------------------| | $4,000/month | $1,000 | $1,400 (on ~$70k gross) | | $5,000/month | $1,250 | $1,750 (on ~$85k gross) | | $6,000/month | $1,500 | $2,100 (on ~$100k gross) | | $8,000/month | $2,000 | $2,800 (on ~$130k gross) |

The 25% net rule is notably more conservative than lender approval standards. It is not required. It produces more comfortable homeownership.

Home Price to PITI Translation

Assuming 20% down, 6.75% rate, 30 years, 1.1% property tax, $150/month insurance:

| Home Price | Loan Amount | PITI | |-----------|-------------|------| | $250,000 | $200,000 | $1,665 | | $300,000 | $240,000 | $1,980 | | $350,000 | $280,000 | $2,294 | | $400,000 | $320,000 | $2,609 | | $450,000 | $360,000 | $2,923 | | $500,000 | $400,000 | $3,237 |

To use the table: if your 25% rule gives you $2,000/month available for PITI, you can comfortably afford approximately $300,000-$310,000 home.

Use the CalcMoney Mortgage Calculator to adjust for your specific property tax rate and insurance.

The Down Payment Impact

More down = lower payment + no PMI.

On a $350,000 home:

| Down Payment | Loan | Monthly PITI | PMI | Total | |-------------|------|-------------|-----|-------| | 3.5% (FHA) | $337,750 | $2,380 | $195 | $2,575 | | 5% | $332,500 | $2,320 | $167 | $2,487 | | 10% | $315,000 | $2,200 | $115 | $2,315 | | 20% | $280,000 | $1,960 | $0 | $1,960 |

The 20% down payment saves $615/month vs. FHA. On a $350,000 home, that is over $7,000/year in lower payments. Saving for a larger down payment while renting is a financial accelerator, not a delay.

What You Should Not Sacrifice to Buy a Home

Housing is important, but some tradeoffs are not worth making:

Do not stop retirement contributions. If reaching 20% down requires pausing 401k contributions for 5 years, model the opportunity cost. Five years of employer match plus compound growth may exceed the savings from avoiding PMI.

Do not drain emergency fund. Owning a home requires liquidity. A broken furnace, plumbing emergency, or roof repair arrives within the first few years for most owners. Enter homeownership with 3-6 months of expenses available beyond the down payment.

Do not overextend for a "forever home." Life changes. Most people move or significantly change their housing situation within 7-10 years of purchase. Buy for your current and likely near-term life, not the imagined future where everything has worked out.

Rent vs. Buy: When Each Makes Sense

At current rates and prices in most US markets, renting is often cheaper on a monthly cash flow basis than buying equivalent space. The case for buying rests on:

• Expected tenure (buy if staying 5+ years — price covers transaction costs)
• Building equity vs. renting (equity is forced savings)
• Control and permanence (lease terms, ability to modify)
• Inflation protection (fixed rate mortgage payment doesn't rise; rent does)

The case for renting rests on:

• Flexibility (move without transaction costs)
• Cash flow (lower monthly out-of-pocket in most markets)
• No maintenance responsibility
• Investment return on down payment (if invested elsewhere instead)

Both are valid. The choice depends on your specific numbers and life circumstances.

Frequently Asked Questions

Should I buy as much house as I can qualify for?

No. The lender's maximum is designed to maximize their loan volume, not your financial wellbeing. Aim for comfortable, not maximum. A mortgage that allows you to also save for retirement, maintain an emergency fund, and not feel stressed is worth much more than an extra bedroom.

Does my credit score affect how much house I can afford?

Indirectly. A better credit score gets you a lower mortgage rate, which means the same income supports a higher loan amount. The difference between a 680 and 760 credit score on a $300,000 mortgage can be 0.5-0.75% in rate, worth $25,000-$35,000 over the loan term.

What if home prices are too high in my area?

You have three options: buy a smaller/less desirable property in your target area, move to a more affordable area, or continue renting and investing the down payment. All three are valid. Stretching beyond your means to buy in a specific area because of perceived status is the path to financial stress.