How Much House Can I Afford?
Lenders answer this question with a ratio. You should answer it with a budget. Here is how to do both.
Step 1: how lenders see it — debt-to-income
Your debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. Two versions matter:
- Front-end DTI — housing payment only. The traditional guideline is 28%.
- Back-end DTI — housing plus car loans, student loans, card minimums and support payments. The traditional guideline is 36%.
Actual limits depend on the program. Fannie Mae’s Selling Guide sets a maximum total DTI of 36% for manually underwritten loans, which can go up to 45% for borrowers meeting credit score and reserve requirements, and up to 50% for loans underwritten through its Desktop Underwriter system. Being approved at 45% or 50% does not mean that payment will be comfortable.
Step 2: count the whole payment
The housing payment in DTI is not just principal and interest. It includes property tax, homeowners insurance, mortgage insurance and HOA dues. In many areas taxes and insurance add hundreds of dollars a month, which directly lowers the price you can afford. The U.S. effective property tax rate is about 0.89% of value, but it ranges from 0.27% in Hawaii to 1.92% in Illinois (Census ACS 2024).
Step 3: solve for the price
Given a budget, the price follows from the payment formula. With a 28% front-end limit, 36% back-end limit, $400 in other debts, $40,000 down, a 6.5% 30-year loan, 0.89% property tax, $1,800 insurance and 0.5% PMI:
| Gross income | Housing budget / month | Maximum price |
|---|---|---|
| $60,000 | $1,400.00 | $203,168 |
| $80,000 | $1,866.67 | $265,565 |
| $100,000 | $2,333.33 | $327,961 |
| $125,000 | $2,916.67 | $405,957 |
| $150,000 | $3,500.00 | $483,953 |
These are examples; your rate, taxes, insurance and debts change them. Run your own numbers in the affordability calculator, or see estimates for a specific salary in affordability by salary.
Step 4: check the cash
You need the down payment and closing costs (Freddie Mac: typically 2%–5% of the price), plus moving costs and an emergency fund that remains after closing. Many lenders also want to see reserves — months of payments left in the bank. The down payment calculator totals what you need.
Step 5: stress-test your budget
- Use take-home pay. DTI uses gross income. Check that the payment works against what actually reaches your bank account after taxes and retirement contributions.
- Budget for maintenance. Owners pay for repairs that landlords used to cover.
- Consider the rate risk. If you are shopping before locking a rate, see how a one-point rise changes your price range — the affordability calculator shows this automatically.
- Leave room for your goals. Retirement saving, childcare and travel don’t appear in DTI, but they matter to you.
Quick rules of thumb, and their limits
You may hear “buy a home worth two and a half to three times your income.” Rules like that ignore interest rates, taxes, debts and down payment, all of which change the answer enormously. At today’s rates, the DTI method above is a far better guide.
Sources
- Fannie Mae Selling Guide, B3-6-02, “Debt-to-Income Ratios” (April 2, 2025)
- Freddie Mac, “Understanding homebuying costs,” My Home by Freddie Mac (accessed September 2026)
- U.S. Census Bureau, American Community Survey 2024 1-year estimates, table B25103 (median real estate taxes paid) and table B25077 (median value, owner-occupied units)