How much house can I afford calculator, the way a lender runs it

Most people pick a price and hope the payment works. This calculator answers “how much house can I afford?” the way a lender does: it starts with your gross income and monthly debts, finds the most your house payment can be, and works back to the price that payment buys, all in. It checks your cash too, because a payment you can carry doesn’t help if you can’t close.

How the calculator answers “how much house can I afford?”

Two tests, and the price has to pass both.

1. The payment test. Gross monthly income times your debt-to-income limit, minus your other monthly debts, is the room left for the house payment. That payment is all in: principal and interest, taxes, insurance, mortgage insurance and HOA dues.
2. The cash test. The calculator sets aside 3% of the price for closing costs and puts the rest of your cash toward the down payment, up to 20%. What’s left after closing costs has to cover your program’s minimum down payment: 3% conventional, 3.5% FHA, zero on VA and USDA.

It tries prices until it finds the highest one that passes both, rounded down to the nearest $1,000.

How the default budget gets to $428,000

	Gross monthly income	$8,500
×	Debt-to-income limit	45%
−	Monthly debt payments	$600
=	Room for the house payment	$3,225

At $428,000 in Chesterfield County the all-in payment is about $3,221, with $17,160 down and $12,840 set aside for closing costs.

Hypothetical example at an example rate of 6.5%. Not a quote or an approval.

What each input means

• Gross monthly income. Before taxes, for everyone on the loan. Salary is simple; overtime, bonus, commission and self-employment each have their own rules, covered in my guide to how lenders count income and what you can afford.
• Monthly debt payments. The minimum payments on what shows on your credit report, plus court-ordered payments: car loans, student loans, card minimums, child support. It’s the payment that counts, not the balance. Deferred student loans can still count, and each program figures them its own way; the rules are in student loans and your DTI. Utilities and phone bills don’t go here.
• Cash for down payment and closing. Only the money you plan to spend.
• Example interest rate. A starting example. The calculator runs a 30-year fixed.
• Debt-to-income limit. 36% conservative, 43% comfortable, 45% typical approval, 50% a stretch for strong files.
• Program, credit score, county, insurance and HOA. These work the same as in the mortgage payment calculator: the program sets the minimum down payment and mortgage insurance, the score prices conventional PMI, and the county sets the tax rate.

What the calculator assumes

• Closing costs at 3% of the price. In my files they run about 2% to 3%, so this is a planning number, not a padded one. For a line-by-line version, use the cash to close calculator.
• Mortgage insurance and financed fees from the same tables as the payment calculator. VA uses the first-use funding fee. The PMI table stops at the 95% loan-to-value band, so with less than 5% down, as on the defaults, the PMI line reads a little light.
• Property taxes on the price, at your locality’s posted rate.
• One debt-to-income limit for every program. Real limits come from underwriting and differ by program and file. VA’s regulation sets 41% as its standard and weighs residual income, the money left after taxes, housing, debts and living costs, so treat a VA result as a rough cut.

How to read your result

The big number is the price. Under the pad you’ll see the payment at that price, the down payment and closing set-aside, and a note saying whether your income or your cash is the limit.

Small numbers move it more than people expect. On the defaults, each $100 of monthly debt you pay off adds about $13,000 of price. A half point of rate moves it about $17,000. $100 of HOA dues costs the same $13,000 a $100 car payment does. The same income buys about $14,000 less in Richmond city than in Chesterfield, because the city’s tax rate is $1.20 instead of $0.89. In my files, wiping out a $650 to $750 payment buys about $100,000 of price. At these numbers the calculator puts a $750 payment at about $97,000.

When the number feels right, the next step is a different animal. We only pre-approve, we don’t pre-qualify. A letter I issue means your income, assets and credit are documented and run through automated underwriting, so the number on it is built on documents, not guesses. This calculator is closer to a pre-qualification: your numbers, my math. Here’s how my pre-approval works.

Questions people ask me about this

What is a good debt-to-income ratio for a mortgage?

Mid-30s is what I call super healthy. Forty-five percent is the average I see on closed files, my all-American debt ratio, and on a conventional loan my working ceiling is 50%. VA’s regulation sets 41% as its standard and looks harder at residual income above that, so the right number depends on the program and the whole file.

Is debt-to-income figured on gross pay or take-home pay?

Gross, before taxes. The bank counts all of your pay, but in my experience most households keep something like 70% of it after taxes and deductions. That’s why the approval number runs above what feels comfortable, and why I want you to test the payment against your real budget too.

Does the 3 times income rule still work?

As a gut check, yes: I use three to five times gross yearly income, with three the conservative end. On the calculator’s defaults ($102,000 a year), that’s $306,000 to $510,000, and the $428,000 it finds is about 4.2 times income. If a result lands above five times your income, slow down and look hard at the payment.

Why does the calculator say my cash is the limit?

Because after it sets aside about 3% of the price for closing costs, your cash still has to cover the program’s minimum down payment. When it can’t, the price stops there even if your income could carry more. A seller credit toward closing costs or a gift from family can raise that ceiling.

Should I put all my savings into the house?

No. The calculator puts every dollar you enter into the down payment and closing costs, so enter only what you plan to spend and leave your reserves out. I want savings left after closing, because there’s no landlord to call when the water heater goes.

Sources

• Fannie Mae Selling Guide B3-6-02, debt-to-income ratios
• 38 CFR 36.4340, VA underwriting standards, debt-to-income ratio and residual income
• Fannie Mae Eligibility Matrix (DU), maximum loan-to-value ratios
• HUD Handbook 4000.1 (Update 18), borrower's minimum required investment
• VA, VA home loan limits and entitlement