How Home Affordability Works
Home affordability is determined primarily by your income, debts, down payment, and the current mortgage interest rate. Lenders use the 28/36 rule: your housing costs should not exceed 28% of gross monthly income (front-end ratio), and total debts should not exceed 36% (back-end ratio).
This calculator uses the more conservative of the two ratios to determine the maximum home price you can afford. Some loan programs (FHA, VA) allow higher DTI ratios up to 43-50%.
Affordability Formula
Key Affordability Factors
| Factor | Impact | Typical Range |
|---|---|---|
| Interest Rate | Each 1% increase reduces buying power ~10% | 5.5% - 7.5% |
| Down Payment | Larger down = lower monthly payment | 3% - 20%+ |
| DTI Ratio | Lower DTI = easier approval | 28% / 36% |
| Credit Score | Higher score = better rate | 620 - 850 |
| Loan Term | 30yr = lower payment, more interest | 15 or 30 years |
Frequently Asked Questions
What is the 28/36 rule?
The 28/36 rule states that no more than 28% of your gross monthly income should go toward housing costs (mortgage, taxes, insurance), and no more than 36% should go toward total debt payments including housing, car loans, student loans, and credit cards.
How much house can I afford on $100k salary?
With a $100,000 salary, 20% down payment, and 6.5% interest rate on a 30-year mortgage, you can typically afford a home around $400,000-$450,000 depending on your other debts, property taxes, and insurance costs.
Should I buy the maximum I can afford?
Financial advisors generally recommend buying below your maximum to maintain a comfortable budget with room for savings, emergencies, and lifestyle expenses. Many suggest keeping housing costs at 25% or less of gross income.