How this calculator works
Mortgage affordability is bounded by two ratios lenders use:
- Front-end ratio: the maximum share of your gross monthly income that can go to housing (PITI: principal, interest, taxes, insurance, mortgage insurance, HOA). Varies by loan type.
- Back-end ratio (DTI): the max share of your gross monthly income that can go to all debts including the new mortgage.
We take the tighter of the two ratios, subtract your existing debt payments, and solve algebraically for the home price that produces that PITI.
Loan program limits we apply:
- Conventional: front 28%, back 45%, 3% min down, 620+ FICO. PMI until 20% equity.
- FHA: front 31%, back 43%, 3.5% min down, 580+ FICO. MIP for life of loan (unless you put 10%+ down, then 11 years).
- VA: front 41%, back 41%, 0% down, 580+ FICO. No monthly MI. Requires military service.
- USDA: front 29%, back 41%, 0% down, 640+ FICO. Rural areas only, income limits apply.
Closing costs estimated at 3% of home price (typical range is 2-5%). Total out-of-pocket = down payment + closing costs.
FAQ
What's the 28/36 rule?
A classic affordability rule: housing should be no more than 28% of gross income, total debt no more than 36%. Today's mortgage underwriting is more generous (back-end DTIs up to 45-50% are approved regularly), but the 28/36 rule keeps you from being house-poor.
Should I put 20% down?
Not always. 20% avoids PMI (typically 0.5-1.5% of the loan annually), but takes years longer to save. Running the rent vs buy calculator with different down payment scenarios usually shows that 5-10% down with a few years of PMI wins over waiting 3-5 more years to save 20%.
What's the difference between pre-qualified and pre-approved?
Pre-qualified is a soft estimate based on what you tell the lender. Pre-approved is a hard commitment based on verified documentation (tax returns, pay stubs, bank statements). Sellers take pre-approved offers seriously; pre-qualified ones less so.
What's "middle FICO"?
Lenders pull your score from all three bureaus (Equifax, Experian, TransUnion) and use the middle one for qualification. If you co-borrow with a spouse, the lender uses the lower of your two middle scores.
What's not in this estimate?
Homeowner utilities, maintenance reserves (budget 1% of home value annually), furniture, appliances, moving costs. Your true monthly "cost of owning" is usually $300-600/month higher than PITI alone.
How accurate is this?
It's directionally right for standard buyers. Your actual approval amount can differ based on employer history (W2 vs 1099 vs K-1), asset reserves, compensating factors, and lender overlays (stricter standards than the program minimums). Use this for planning; get a real pre-approval from a lender before shopping.
What if I'm self-employed?
Self-employed borrowers (1099 or K-1) typically need 2 full years of tax returns, and lenders will average the two years' net income (after deductions) as your qualifying income. Your taxable income, not your gross revenue, is what qualifies.