A lender will tell you what you can borrow. That number is calculated from their risk, not your life, and it is almost always larger than the number you should act on. The gap between the two is where people end up owning a house they cannot enjoy — technically affordable, practically airless, every decision for the next decade shaped by a payment date.
So it is worth working out your own figure before anybody works one out for you. The arithmetic takes about ten minutes and it is not difficult. The honest part is harder, and comes at the end.
The rule lenders start from
Most mortgage underwriting in the United States begins with two percentages, usually written as 28/36:
- 28% — your housing payment should not exceed 28% of your gross monthly income. This is the front-end ratio.
- 36% — all your debt payments together, housing included, should not exceed 36%. This is the back-end ratio.
"Gross" means before tax, which is the first place the rule flatters you. On an income of $7,000 a month, 28% is $1,960 for housing and 36% is $2,520 for everything — so if you already pay $600 for a car and $200 on student loans, the back-end limit leaves you $1,720, and it is the lower of the two figures that binds.
The percentages are conventions rather than laws, and lenders stretch them. Government-backed programmes routinely approve higher ratios, and a strong credit score or a large deposit will buy you more room. The direction of that flexibility is always the same: it lets you borrow more, never less.
What the housing payment actually includes
The most expensive mistake is to compare 28% of your income against the loan repayment alone. The 28% is meant to cover the whole cost of occupying the house:
- Principal and interest — the loan repayment itself.
- Property tax — varies enormously by location, from well under 1% of the home's value per year to over 2%. On a $400,000 house that is a range of roughly $250 to $700 a month, decided entirely by which side of a county line you buy on.
- Home insurance — commonly $100 to $250 a month, and rising sharply in areas exposed to flood, fire, or wind.
- Mortgage insurance — usually required with a deposit under 20%, often 0.5% to 1.5% of the loan each year.
- Association fees — for a condominium or a managed community, and they can rise with little notice.
Together these can add 30% or more to the payment you first calculated. Our mortgage calculator takes tax, insurance and fees alongside the loan so the monthly figure you are looking at is the one that will actually leave your account. It runs in your browser, so your income and debts are not sent anywhere.
What the rule leaves out entirely
Even a complete monthly payment is not the cost of owning a house.
Maintenance. A widely used planning figure is 1% of the home's value per year — $4,000 on a $400,000 house — and it arrives unevenly. Nothing happens for three years and then the roof needs replacing. If you are moving from renting, this is a cost you have never paid before, because your landlord paid it.
Buying costs. Closing costs typically run 2% to 5% of the purchase price, on top of your deposit. Then there is moving, and the things a new house immediately needs.
Everything the ratios ignore. Childcare, medical costs, retirement contributions, and irregular obligations do not appear in a debt-to-income calculation. Two households on identical incomes with identical debts can have entirely different amounts of money left over, and the ratio cannot see the difference.
Test the number against your own life
Three checks, in order of how much they tell you:
- Live on it first. For three months, move the difference between your current rent and the proposed payment into a separate savings account on payday. If those three months were uncomfortable, you have your answer, and you have also saved some money.
- Add two percentage points. If your rate is not fixed for the full term, work out the payment at a rate two points higher and ask whether it is survivable. Fixed rates make this less urgent, but taxes and insurance still move.
- Ask what it costs you. Not whether you can pay it — whether paying it still leaves room for retirement saving, a holiday, and a bad year. A payment that consumes all of your flexibility is affordable in exactly the way holding your breath is affordable.
Many people deliberately buy below what they are approved for. That is not timidity; it is buying back the ability to change jobs.
A limit worth stating plainly
This is general information, not financial advice, and it is written around US conventions — the ratios, the tax treatment and the insurance rules differ elsewhere. Nobody, ourselves included, can tell you what is affordable for your household from a percentage. Before you commit, talk to a mortgage broker or an independent financial adviser who can see your whole position.
Common questions
Should I use gross or net income?
Lenders use gross, so use gross when you want to predict what they will approve. When you are deciding what you personally want to pay, use take-home pay — the payment comes out of that, not out of the pre-tax figure.
Does a larger deposit mean I can afford more house?
It lowers the loan, and above 20% it usually removes mortgage insurance, so the monthly payment falls on both counts. Be careful not to empty your savings to reach it. A house with no emergency fund behind it is a fragile arrangement, and the repairs start immediately.
Is a longer term a way to afford more?
It lowers the monthly payment and raises the total interest, often considerably. It is a legitimate choice if the shorter term genuinely does not fit your budget. It is a poor reason to raise your target price, because you are buying the same house and paying more for it.