How Much House Can I Afford? (Mortgage Affordability Calculator)
Determining "how much house can I afford" is the crucial first step in the homebuying process. It goes beyond just checking current mortgage rates; it requires a deep dive into your financial health, specifically focusing on your income, existing debts, and available down payment. Lenders primarily use a metric called the **Debt-to-Income (DTI) ratio** to assess your ability to manage monthly mortgage payments.
There are generally two DTI ratios lenders consider:
- Front-End Ratio: The percentage of your gross annual income that goes toward housing costs (principal, interest, taxes, and insurance). A common guideline is that this should not exceed **28%**.
- Back-End Ratio: The percentage of your gross annual income that goes toward all monthly debt payments (housing costs plus car loans, student loans, credit cards, etc.). Most lenders prefer this ratio to be under **36%**.
For example, if your gross annual income is $90,000 ($7,500 per month) and you have $500 in other monthly debts, a 36% back-end ratio means your total allowed debt is $2,700 ($7,500 x 0.36). Subtracting your existing $500 debt leaves $2,200 available for a mortgage payment. This calculator uses these standard 28%/36% ratios to estimate your maximum home purchasing power.