Mortgage Guides
How Much House Can I Afford?
8 min read · Updated
There are two different answers to this question. What a lender will approve, and what will leave you comfortable. They are rarely the same number, and the gap between them is where most buyer regret lives.
What lenders actually check
Underwriting turns on two debt-to-income ratios. The front-end ratio measures housing costs against gross monthly income. The back-end ratio measures every monthly debt payment — housing, credit cards, car loans, student loans — against the same income.
The conventional benchmark is 28/36: housing under 28%, total debt under 36%. On a $120,000 salary that is $2,800 for housing and $3,600 for all debt combined. Whichever ratio binds first sets the limit, which is why paying off a car loan can raise your housing budget by almost the entire payment.
Why approval is not a recommendation
DTI ratios are calculated on gross income — before income tax, before Social Security and Medicare, before your 401(k). A $120,000 salary might deliver $7,000 a month in take-home pay, not the $10,000 gross the ratio is measured against.
A payment at the top of a 28% front-end approval can therefore be 40% of what actually reaches your account. That is survivable and, for many households, uncomfortable.
The costs that no ratio includes
A mortgage payment is not the cost of owning a home. Several significant expenses sit entirely outside underwriting.
- Maintenance
- Roughly 1% of the home’s value a year — about $333 a month on a $400,000 house. Lumpy and unavoidable: roofs, water heaters, HVAC systems.
- Closing costs
- 2%–5% of the purchase price, due at closing and separate from the deposit.
- Mortgage insurance
- Typically 0.5%–1.5% of the loan amount per year below a 20% down payment.
- Utilities
- Frequently higher than in a rental, especially moving from an apartment to a house.
- Furnishing the space
- A predictable few thousand dollars that arrives right after the largest purchase of your life.
A more useful test
Work backwards from take-home pay rather than gross. Take your actual monthly net income, subtract retirement contributions, an emergency-fund contribution and existing debt payments, and see what is genuinely available for housing.
Then rehearse it. Set aside the difference between your current rent and the proposed payment every month for three months and see how it feels. Households that run this test before committing are far less likely to be surprised afterwards.
How the down payment changes the picture
Twenty percent is not a requirement. Conventional loans go to 3%, FHA to 3.5%, and VA and USDA to zero for eligible buyers. Twenty percent matters because it removes private mortgage insurance, which is pure cost with no benefit to you.
There is a real trade-off. Waiting two years to reach 20% means two more years of rent, and possibly a higher purchase price. Buying sooner with 10% down means paying PMI until you build enough equity to remove it. Neither choice is obviously right; it depends on your local market and how quickly you can build equity.
Before you start looking
Get pre-approved rather than pre-qualified. Pre-qualification is an estimate from unverified information. Pre-approval involves an actual credit check and document review, and sellers treat the two very differently.
Then decide your own ceiling, separately from the approval letter, and hold it. Agents show properties at the top of your approval; the number that protects you is the one you set before you started looking.