🏠 How Much House Can I Afford? DTI Calculator & 28/36 Rule🏠 Home Affordability

Understanding the 28/36 DTI Rule

The 28/36 rule is the gold standard lenders use to determine mortgage affordability:

• Front-End Ratio (28%): Your total monthly housing payment (principal, interest, taxes, insurance, PMI, and HOA) should not exceed 28% of your gross monthly income.
• Back-End Ratio (36%): Your total housing payment PLUS all other monthly debt obligations (car loans, student loans, credit cards, personal loans) should not exceed 36% of your gross monthly income.

For example, if you earn $75,000 per year ($6,250/month), your maximum housing payment would be $1,750 (28% of $6,250). If you have $500 in monthly debts, your maximum total debt payments would be $2,250 (36% of $6,250), leaving $1,750 for housing, the same as the front-end limit.

However, if you have $1,000 in monthly debts, the back-end ratio becomes your binding constraint: 36% of $6,250 is $2,250, minus $1,000 in debts = $1,250 max for housing. The calculator automatically uses whichever limit is more restrictive.

Why We Assume the 28/36 Rule

Plenty of loan programs exist, FHA, VA, USDA, jumbo lenders, and even manual underwrites with compensating factors. Each one tweaks the acceptable DTI ratios. Rather than guess which lender you'll use, this calculator defaults to the most common and conservative benchmark: 28% of income for housing, 36% for total debt.

Using one standard keeps the tool simple and transparent. If your lender offers a more flexible program, treat the calculator's results as a baseline and mentally layer in that extra buying power. Conversely, if your credit profile is weaker, you may need to stay below 28/36 even more.

Key takeaway: all math on this page is anchored to the 28/36 assumption. It's a safe starting point for planning conversations with real estate agents, loan officers, or partners.

How the Calculator Determines Your Maximum Home Price

The calculator uses an iterative convergence algorithm because property taxes and PMI create circular dependencies, they depend on the home price, which is what we're trying to find. Here's how it works:

1. Calculate your maximum monthly housing payment based on your income, debts, and the 28/36 DTI assumption
2. Start with an estimated home price and calculate the resulting property tax and PMI
3. Subtract property tax, insurance, PMI, and HOA from the maximum housing payment
4. The remaining amount is available for principal and interest (P&I)
5. Use the mortgage amortization formula to calculate how much you can borrow with that P&I payment
6. Divide the loan amount by (1 - down payment %) to get the implied home price
7. Repeat steps 2-6 until the home price converges (typically 5-10 iterations)

This method ensures accuracy even when property tax rates are high or down payments are small (triggering PMI).

Affordability Comfort Zones Explained

Conservative Zone (25% of Gross Income)

The conservative zone caps housing at 25% of gross monthly income, leaving a 12-15% cushion versus the 28/36 standard. This approach is best for:

• Variable or commission-based income that fluctuates month-to-month
• Limited emergency funds (less than 3-6 months expenses)
• High lifestyle expenses (childcare, health costs, student loan payoff goals)
• Risk-averse buyers who want financial flexibility

Moderate Zone (28/36 Rule)

The moderate zone follows the traditional 28/36 guideline that powers the entire calculator. This works well if you have:

• Stable W-2 employment with predictable income
• 6+ months emergency fund saved
• Minimal other debts (under 10% of gross income)
• Moderate lifestyle expenses

Aggressive Zone (Debt-Free Stretch)

The aggressive zone shows what the 28/36 rule would allow if you eliminated other monthly debts. Only consider stretching this far if:

• You have very stable income with strong job security
• You have minimal or no other debts (or plan to pay them off before closing)
• You maintain 12+ months emergency fund
• You expect significant income growth soon
• You're willing to sacrifice lifestyle flexibility for homeownership

Warning: Maxing out your DTI leaves no cushion for unexpected expenses, job loss, or interest rate increases (if you have an ARM). Most financial advisors recommend staying in the conservative or moderate zones.

Monthly Housing Expenses: Line by Line Breakdown

Principal & Interest (P&I)

The portion of your payment that pays down the loan balance (principal) and compensates the lender (interest). Early in the loan, most of your payment goes to interest. Later, more goes to principal. P&I is determined by your loan amount, interest rate, and term length.

Property Taxes

Annual taxes owed to your county or municipality, typically 0.5-2.5% of home value depending on location. Texas and New Jersey average 1.8-2.5%, while Hawaii and Alabama average 0.3-0.5%. Check your county assessor's website for exact rates. Paid monthly via escrow or annually in some states.

Homeowners Insurance

Required by all lenders, covers damage from fire, theft, storms, and liability claims. Costs vary by location, home value, deductible, and coverage limits. Typical annual premiums range from $1,000-$3,000. Coastal and disaster-prone areas pay significantly more. Paid monthly via escrow.

Private Mortgage Insurance (PMI)

Required if your down payment is less than 20% of the home price. Protects the lender if you default. Costs 0.3-1.5% of loan amount annually (typically 0.5-1.0% for good credit). Can be removed once you reach 20% equity through payments or appreciation. FHA loans charge MIP instead, which cannot be removed unless you put down 10%+.

HOA Fees

Homeowners Association fees for condos, townhomes, and planned communities. Cover common area maintenance, amenities, reserves, and sometimes utilities. Range from $100-$700+/month depending on amenities. Review HOA financials and rules before buying, high fees or special assessments can hurt affordability.

Tax Benefits of Homeownership

Homeownership offers several tax advantages that can reduce your effective housing cost:

• Mortgage Interest Deduction: Deduct interest paid on up to $750,000 of mortgage debt ($375,000 if married filing separately). Most beneficial in early years when interest comprises most of your payment.
• Property Tax Deduction: Deduct up to $10,000 ($5,000 if married filing separately) in state and local taxes (SALT), including property taxes.
• Capital Gains Exclusion: Exclude up to $250,000 ($500,000 if married) of capital gains when you sell your primary residence, if you've lived there 2+ years in the last 5 years.
• Home Office Deduction: If you're self-employed and use part of your home exclusively for business, you can deduct a portion of mortgage interest, property taxes, insurance, and utilities.

Important: You must itemize deductions to benefit from mortgage interest and property tax deductions. With the standard deduction at $14,600 (single) or $29,200 (married) in 2025, many homeowners don't itemize unless they have significant deductions. Consult a tax professional to model your specific situation.

Common Mistakes When Calculating Home Affordability

1. Using Net Income Instead of Gross Income

Lenders calculate DTI based on gross (before-tax) income. If you earn $75,000 but bring home $55,000 after taxes, use $75,000 in the calculator. Using net income underestimates your buying power by 20-30%.

2. Forgetting to Include All Monthly Debts

Include minimum payments on credit cards, car loans, student loans, personal loans, and child support. Even a $50/month minimum payment reduces your max home price by $10,000-$15,000.

3. Ignoring Regional Property Tax and Insurance Variations

Default assumptions don't reflect your market. A $300,000 home in Texas ($6,000 annual property tax) requires a higher monthly payment than the same home in Florida ($3,000 annual tax). Always update tax rate and insurance inputs.

4. Maxing Out DTI Without Emergency Savings

Lenders approve the maximum you qualify for, not what's prudent. If you lose your job or face major repairs, maxing out your DTI leaves zero financial cushion. Aim for conservative or moderate zones unless you have 12+ months reserves.

5. Overlooking HOA Fees and Maintenance Costs

HOA fees ($100-$700/month) and maintenance (1-2% of home value annually) aren't included in lender DTI calculations but directly impact affordability. Budget 1% of home value annually for maintenance even if you're handy.

6. Not Testing Multiple Down Payment Scenarios

PMI kicks in below 20% down. A $300,000 home with 10% down requires ~$125/month PMI. Test 10%, 15%, and 20% scenarios to see the payment difference, you might delay buying 6 months to save another $15,000 and avoid PMI.

Using This Calculator Effectively

Maximize your home affordability analysis by:

1. Verify your gross income: Check your last pay stub or W-2. Include bonuses, commissions, and side income if they're documented and consistent.
2. Calculate exact monthly debts: Pull your credit report (free at annualcreditreport.com) to ensure you don't miss any accounts. Use minimum payments, not full balances.
3. Research local costs: Look up property tax rates on your county assessor's website. Get insurance quotes from 3+ providers. Call HOA for exact monthly fees.
4. Test multiple scenarios: Run calculations with 10%, 15%, and 20% down payment. See how paying off a car loan or eliminating credit cards before buying affects your max price.
5. Stress test with higher rates: If rates are 7% now but might rise to 8% soon, model both scenarios. A 1% rate increase reduces your max price by 10-12%.
6. Factor in future expenses: Plan to have kids? Change careers? Account for income and expense changes when choosing conservative vs aggressive affordability zones.
7. Share with partners: Send the share link to your co-buyer, financial advisor, or mortgage broker so everyone reviews the same numbers.

After determining your max price, use the Mortgage Calculator to model exact monthly payments with different down payments and rates, or check the Rent vs Buy Calculator to see if homeownership makes sense versus renting in your market.

Home Affordability Calculator FAQs

Complete Guide to Home Ownership Costs Beyond the Mortgage

Your monthly mortgage payment is just the start. Plan for these ongoing and one-time costs:

Ongoing Monthly/Annual Costs

• Maintenance & Repairs: Budget 1-2% of home value annually ($250-$500/month on a $300k home). Covers HVAC service, plumbing, roof repairs, appliance replacement.
• Utilities: Electric, gas, water, sewer, trash ($200-$400/month depending on home size and location).
• Landscaping & Snow Removal: $100-$300/month if you hire out, or cost of equipment if DIY.
• Pest Control: $30-$60/month for regular treatments in termite or rodent-prone areas.
• Home Security/Alarm: $30-$60/month for monitoring services.

One-Time & Irregular Costs

• Closing Costs: 2-5% of purchase price. Includes appraisal, title insurance, lender fees, attorney fees, recording fees ($6,000-$15,000 on a $300k home).
• Moving Costs: $500-$5,000 depending on distance and whether you hire movers.
• Immediate Repairs/Upgrades: Paint, flooring, kitchen updates ($5,000-$50,000 depending on scope).
• Furniture & Appliances: $3,000-$15,000 to furnish a new home.
• Emergency Reserve: Maintain 3-6 months of total housing costs + living expenses ($20,000-$40,000 minimum).

Major Replacements (Lifespan & Cost)

• Roof: 15-30 years, $5,000-$25,000 to replace
• HVAC System: 10-20 years, $4,000-$12,000 to replace
• Water Heater: 8-12 years, $800-$2,500 to replace
• Appliances: 8-15 years, $500-$3,000 each
• Windows: 15-25 years, $300-$1,000 per window
• Siding: 20-40 years, $5,000-$15,000 to replace

A $300,000 home typically costs $30,000-$50,000 beyond the down payment in the first year (closing costs, moving, immediate repairs, furniture). Plan for $500-$800/month in ongoing costs beyond your mortgage payment (maintenance, utilities, landscaping).

Should You Pay Off Your Mortgage Early?

Once you've determined your home affordability and secured financing, the question becomes: should you pay off your mortgage faster than required? The answer depends on your interest rate, alternative investment returns, and personal financial goals.

When Paying Off Your Mortgage Early Makes Sense

• High interest rates: If your mortgage rate is 7% or higher, paying it off early guarantees a 7% return on every dollar of principal you eliminate, hard to beat in low-risk investments.
• Peace of mind: Some homeowners value debt-free ownership over maximizing investment returns. Eliminating your largest monthly expense provides psychological security.
• Approaching retirement: Entering retirement without a mortgage payment significantly reduces required monthly income and lowers financial stress.
• No better use for cash: If you've maxed out retirement accounts, built a 6-12 month emergency fund, and have no higher-interest debt, extra principal payments are a solid use of surplus cash.

When You Shouldn't Rush to Pay Off Your Mortgage

• Low interest rates: If you locked in a 3-4% mortgage during 2020-2021, you're better off investing extra cash in index funds (historical 10% annual returns) than paying down cheap debt.
• No emergency fund: Paying extra principal locks cash into home equity, you can't easily access it without a HELOC or refinance. Build 6 months of expenses in savings first.
• High-interest debt exists: Credit cards at 18-24% APR and car loans at 8%+ should be eliminated before extra mortgage payments. Tackle highest-rate debt first.
• Under-saving for retirement: If you're not maxing out employer 401(k) match or contributing to IRAs, prioritize tax-advantaged retirement savings over mortgage payoff.

Strategies for Accelerated Payoff

If you decide to pay down your mortgage faster, consider these approaches:

• Biweekly payments: Pay half your monthly payment every two weeks (26 half-payments = 13 full payments per year instead of 12). On a $400K, 30-year loan at 7%, this saves $123K in interest and pays off the loan 5 years early.
• Round up payments: If your payment is $2,661, pay $3,000. The extra $339/month on a $400K loan cuts 9 years off the term and saves $194K in interest.
• Annual lump sums: Apply bonuses, tax refunds, or windfalls directly to principal. One $10,000 payment in year 1 of a $400K loan saves $46K in interest over the life of the loan.
• Refinance to 15-year: If rates drop or your income rises, refinance to a 15-year mortgage. Payments increase but total interest paid drops dramatically.

Use the Mortgage Calculator to model extra payment scenarios and see exactly how much interest you'll save and how quickly you'll own your home outright. After determining your max price with the Home Affordability Calculator, the mortgage tool shows you the long-term cost of ownership and payoff strategies.