How Much Mortgage Can I Afford? The Rules Lenders Actually Use
The most common homebuying mistake is shopping for homes before knowing the real number. Not the number a mortgage calculator gives you — the number a lender will actually approve. Here's exactly how lenders calculate affordability, and how to use that math to find the right purchase price for your situation.
The 28/36 Rule — The Classic Guideline
The traditional affordability rule says your housing costs should not exceed 28% of your gross monthly income, and your total debt payments should not exceed 36%.
Example: If you earn $7,500/month gross: 28% = $2,100 max housing payment. 36% = $2,700 max total debt.
This is a conservative rule of thumb. Modern lending programs — especially FHA — allow higher ratios. But it's a useful starting point for planning.
How Lenders Actually Calculate It: DTI
Lenders don't use the 28/36 rule — they use Debt-to-Income ratio (DTI). Your back-end DTI is the number that matters most:
Back-end DTI = (All monthly debt payments + proposed housing payment) ÷ Gross monthly income
Conventional loans: generally allow up to 45–50% DTI
FHA loans: up to 43–50% DTI with compensating factors
VA loans: no official DTI cap, but most lenders want 41% or below
Run the math backward: if your gross income is $8,000/month and you have $500 in existing debt payments, the maximum housing payment at 45% DTI is: (8,000 × 0.45) − 500 = $3,100.
How Down Payment Changes What You Can Afford
A larger down payment reduces your loan balance, which lowers your monthly payment and can bring you within DTI limits on a more expensive home.
It also eliminates or reduces mortgage insurance. On a conventional loan, 20% down means no PMI — saving $100–$200/month on a $300,000 loan.
Example: Home price $400,000. With 5% down ($20,000), your loan is $380,000. With 20% down ($80,000), your loan is $320,000 — reducing your monthly payment by roughly $360 at a 7% rate.
Credit Score's Effect on Your Payment
Your credit score directly affects your interest rate, which affects your payment more than almost anything else.
On a $350,000 30-year loan: a 760+ score might get 6.75%, a 680 score might get 7.50%. That difference is ~$165/month — or roughly $59,000 over 30 years.
Improving your score before you apply can meaningfully change what you can afford. Even 30–60 days of credit optimization can shift your score enough to hit a better rate tier.
Property Taxes, Insurance & HOA — The Hidden Payment
Your mortgage payment (PITI) includes more than principal and interest. For budgeting purposes, add:
Property taxes: vary wildly by state and county. Texas and New Jersey are among the highest (1.5–2.5%+). Alabama and Nevada are among the lowest (0.3–0.6%).
Homeowner's insurance: typically $1,000–$2,500/year depending on location, home value, and coverage.
HOA fees: $0 in most single-family neighborhoods, $200–$600/month in many condos and planned communities.
These additions can add $500–$1,500/month to your payment. Always budget for PITI, not just principal and interest.
The Fast Rule of Thumb
A rough rule used by many loan officers: multiply your gross annual income by 3 to 4.5 to get an approximate purchase price range.
Income $75,000/year → price range $225,000–$337,500
Income $120,000/year → price range $360,000–$540,000
This range widens or narrows based on your debt load, down payment, and local tax rates. Use it as a ballpark, then get a real pre-qualification to find the precise number.
Common Questions
Does the lender's maximum mean I should borrow that much?
No. Lenders tell you the maximum they'll approve — not the number that's right for your life. Many financial advisors suggest keeping your housing payment at 25–28% of take-home pay (not gross income) to leave room for savings, emergencies, and other goals.
Does my spouse's income count if they're on the loan?
Yes. If both of you are on the loan, both incomes are included. Both credit scores are also reviewed — the lender typically uses the lower of the two middle scores for qualification purposes.
Can rental income help me qualify?
Yes, with documentation. Future rental income (on a multi-unit purchase) or existing rental income (from investment properties) can be used, but lenders typically require a 2-year history for existing properties and apply a vacancy factor to the income.
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A licensed HCMG loan officer will walk you through your exact scenario — your credit, income, down payment, and goals — and tell you what you qualify for, with no hard credit check.