How lenders decide how much house you can afford
Lenders limit your total debt-to-income (DTI) ratio: every monthly debt payment, including the new housing payment, divided by your gross monthly income. Fannie Mae's maximum is 36% for manually underwritten loans, up to 45% if you meet its credit score and reserve requirements, and 50% for loans run through its Desktop Underwriter system.[1] The housing payment counts in full: principal, interest, property tax, homeowners insurance, mortgage insurance and HOA dues, the costs usually collected through escrow.[3]
Housing budget = gross monthly income × DTI limit − other monthly debts$100,000 ÷ 12 × 36% − $500 = $2,500.00
Affordable price = highest price whose full payment fits the budget$321,607 with $40,000 down: $2,500.00 a month
| DTI limit | Housing budget | Home price | Loan |
|---|---|---|---|
| 36% | $2,500.00 | $321,607 | $281,607 |
| 45% | $3,250.00 | $413,703 | $373,703 |
| 50% | $3,666.67 | $464,867 | $424,867 |
Notice how much the limit matters: moving from 36% to 50% raises the budget by $1,167 a month and the price by about $143,000. A lender approving you at 50% does not mean 50% is comfortable; it means the rest of your budget has to fit in what is left after taxes.
How much house can I afford on my salary?
At a 36% DTI limit with no other debts, $40,000 down and today's 7.11% average rate, each $10,000 of income adds roughly $37,000 of house.[2] The table holds everything else at the example values.
| Gross income | Housing budget | Home price | Monthly payment |
|---|---|---|---|
| $60,000 | $1,800.00 | $235,652 | $1,800.00 |
| $80,000 | $2,400.00 | $309,328 | $2,400.00 |
| $100,000 | $3,000.00 | $383,004 | $3,000.00 |
| $125,000 | $3,750.00 | $475,100 | $3,750.00 |
| $150,000 | $4,500.00 | $567,195 | $4,500.00 |
| $200,000 | $6,000.00 | $751,386 | $6,000.00 |
For scale, the Census Bureau put median monthly owner costs for homes with a mortgage at $2,035 in 2024.[6] To see the monthly payment for one specific house instead, use the mortgage payment calculator; to weigh buying against renting over the years you expect to stay, use the rent vs buy calculator.
What lowers the price you can afford
Three things eat into the housing budget before principal and interest: other debts, property tax and mortgage insurance. Every $100 of car or student-loan payments costs about $12,000 of house in the example. Taxes grow with the price, so a 2% tax rate instead of 1.2% cuts the price to $297,000.
Private mortgage insurance applies to conventional loans with less than 20% down.[4] The calculator charges it while the loan is above 80% of the price; by law you can ask to cancel it once the balance reaches 80% of the original value, and it ends automatically at 78%.[5] A bigger down payment helps twice: a smaller loan and no PMI. The PMI calculator shows when it drops off.
Mistakes that make a home unaffordable
- Using take-home pay in the ratio. Lenders use gross income, but you pay the mortgage from net pay. Check the payment against your actual monthly budget too.
- Leaving out taxes and insurance. A price based on principal and interest alone overshoots; the calculator includes both.
- Forgetting closing costs. The down payment is not your only cash at closing. See the closing cost calculator.
- Counting on a rate cut. At 1 point higher than the example, the same income affords $300,000 instead of $322,000.
This is a ceiling, not a targetThe calculator shows the most a lender's ratio allows. Savings for repairs, emergencies and retirement come out of the same income, so many buyers choose a price well below it.
Frequently asked questions
How much house can I afford with a $100,000 salary?
About $322,000 with $500 of other monthly debts, $40,000 down and a 7.11% rate, at Fannie Mae's 36% debt-to-income limit; about $465,000 at the 50% maximum for Desktop Underwriter loans.[1]
What debt-to-income ratio do I need for a mortgage?
For Fannie Mae loans, 36% or less when underwritten manually, up to 45% with strong credit and reserves, and up to 50% through Desktop Underwriter. The ratio includes the new housing payment and all other monthly debts.[1]
Does the mortgage affordability calculator include taxes and insurance?
Yes. The payment it fits to your budget includes principal, interest, property tax, homeowners insurance, PMI and HOA dues.
How can I afford a more expensive house?
Pay down other debts, put more money down (which can also remove PMI), or find a lower rate. Each lowers the payment or frees room in the debt-to-income limit.
Sources
- B3-6-02, Debt-to-Income Ratios (Selling Guide)
- Primary Mortgage Market Survey (PMMS)
- What is an escrow or impound account?
- What is private mortgage insurance?
- Homeowners Protection Act, 12 U.S.C. § 4902 (cancellation and termination of private mortgage insurance)
- The Cost of Homeownership Continues to Rise (2024 American Community Survey 1-year estimates)