How much house can I afford?
Work out two numbers. The lender's limit comes from your debt-to-income ratio: your total monthly debts, including the new housing payment, divided by your gross monthly income. Your comfortable budget is usually lower: the full monthly cost - principal, interest, taxes, insurance, HOA and upkeep - that still leaves room for savings and surprises. Shop below the smaller of the two.
The lender's limit
Lenders compare your monthly debts with your gross income. For conventional loans sold to Fannie Mae, the maximum debt-to-income ratio is 36% for manually underwritten loans, up to 45% with stronger credit and reserves, and up to 50% through its automated underwriting. Other programs and lenders set their own limits.
Worked example
Front-end and back-end DTI
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Gross monthly income
- $7,000
- New loan
- $280,000 at 6.75%, 30 years
- Property tax and homeowners insurance
- $350 and $125 a month
- Car payment
- $400 a month
- Student loan
- $250 a month
- Credit card minimums
- $75 a month
| Step | Calculation | Result |
|---|---|---|
| 1. Principal and interest | $280,000 at 6.75% over 360 months | $1,816.07 |
| 2. Housing payment (PITI) | $1,816.07 + $350 + $125 | $2,291.07 |
| 3. Front-end DTI | $2,291.07 ÷ $7,000 × 100 | 32.7% |
| 4. All monthly debts | $2,291.07 + $725 | $3,016.07 |
| 5. Back-end DTI | $3,016.07 ÷ $7,000 × 100 | 43.1% |
Back-end DTI: 43.1%. About 43% of gross income would go to debt payments. That is above the 36% Fannie Mae uses as its base limit for manually underwritten loans, though automated underwriting can approve up to 50% with strong compensating factors.
What this calculation leaves out
- Lenders use gross (pre-tax) income and the minimum required payment on each debt, not what you choose to pay.
- Utilities, groceries and childcare are not in DTI - a loan you qualify for can still strain your budget.
Your own budget
- Start from take-home pay, not gross income.
- Add every housing cost: principal and interest, property tax, insurance, HOA, utilities and about 1% of the price a year for upkeep.
- Keep room for savings and an emergency fund.
- Turn that monthly figure into a price with a mortgage calculator, using a realistic rate.
Frequently asked questions
What is the 28/36 rule?
It is a traditional guideline: housing costs under 28% of gross income and all debts under 36%. Lenders can approve more, but it remains a useful comfort check.
Does pre-approval tell me what I can afford?
It tells you what a lender will lend, which is a ceiling. What you can comfortably afford depends on your other goals and expenses.
What costs do people forget?
Property tax, insurance, HOA dues, maintenance and closing costs. They can add hundreds a month to the mortgage payment.
Calculators and guides
Recommended next step
Turn your monthly budget into a home price with taxes and insurance included.
Find a price that fits your budget →Sources and review
- Selling Guide B3-6-02, Debt-to-Income Ratios, Fannie Mae. Supports: Fannie Mae maximum DTI: 36% manually underwritten (45% with compensating factors), 50% through Desktop Underwriter.
Where this applies: United States. Debt-to-income limits are set by each loan program and lender; the 28/36 guideline is a rule of thumb, not a requirement.
Last reviewed: · Updated:
Worked examples use illustrative round numbers, not current market data. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
General educational information, not financial, legal, tax or real estate advice. Rules vary by loan program, transaction and location - verify important decisions with qualified professionals.