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Wondering if the income needed to buy a home in the top 50 metro areas is starting to decline? Hint: Not yet.

Wondering if the income needed to buy a home in the top 50 metro areas is starting to decline? Hint: Not yet.

How Much House Can I Afford?
Home Affordability Calculator

To determine how much house you can afford, use this home affordability calculator to get an estimate of the home price you can afford based upon your income, debt profile and down payment.

Generally, lenders cap the maximum amount of monthly gross income you can use toward the loan’s principal and interest payment to not more than 28% of your gross monthly income (called the "Front-End" or "Housing Expense" ratio) and traditionally limit your total allowable debt-to-income ratio (called the "Back-End" ratio) to not more than 36%. This final figure includes the mortgage loan’s principal and interest payments, plus taxes, insurance and any other debts you are required to repay.

Prequalifying for a mortgage is simple, and is intended to give you a working idea of how much mortgage you can afford. Combine this amount with your down payment, and you'll answer your question of “how much house can I afford?” This is not the same as being preapproved for a mortgage loan, which involves borrowers placing an application and providing documentation to a lender, who will formally evaluate your financial situation.

Remember -- this is just a guide. Your final amount will vary depending on a number of factors, especially interest rate, which will be based on your credit score. When you're ready, a lender can give you a more precise figure.

How to calculate how much house you can afford

To produce estimates, both Annual Property Taxes and Insurance are expressed here as percentages. Generally speaking, and depending upon your location, they will typoically range from about 0.5% to about 2.5% for Taxes, and 0.5% to 1% or so for Insurance.

Front End and Back End debt ratios are to determine how much of your monthly gross income can be used for your mortgage debt (front end) and how much can be used to satisfy all your regular obligations (back end). The 28% and 36% ratios are standard in the mortgage world, but lenders may have other combinations available, such as 33%/38%.

How Much House Can I Afford?
Home Affordability Calculator

C A L C U L A T I N G

Please enter gross annual income greater than 0

Please enter monthly debt payments greater than 0

(Car payments, credit cards, student loan payments, etc.)

Please enter down payments greater than 0

Please enter interest rate greater than 0

Please enter loan term greater than 0

Please enter property tax greater than 0

Please enter property insurance greater than 0

Please enter front end ratio greater than 0

Please enter back end ratio greater than 0

Home value you can afford
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Down Payment
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Down Payment percent
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Principal + Interest payment
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Taxes and Insurance
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Monthly PMI
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Detailed calculations
Generally, lenders cap the maximum monthly housing allowance (including taxes and insurance) to lesser of Front End Ratio (28% usually) and Back End Ratio (36% usually).
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Monthly Gross Income
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Payment for Front End Ratio
Front End Ratio
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Payment for Back End Ratio
Back End Ratio
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Monthly Debts
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Percent of Gross Income
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Maximum Available for Mortgage Payments
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  • Income. First, add up the income that will be used to qualify for the mortgage, including bonuses and commissions. A simple method is to divide your annual pre-tax income by 12 to produce your monthly gross income. Make sure you have the documentation to prove every source of income; otherwise it cannot be counted when you meet with a mortgage lender.
  • Debt. Add all the payments you make each month for car loans, credit cards, student loan payment and any other debt. Based on your income, there are limits on how much debt you'll be allowed to carry, including your mortgage. These debts will limit how much mortgage you can borrow.
  • DTI ratio. When a mortgage lender calculates your level of debt based upon how much money you make, it is known as your “debt-to-income (DTI) ratio.” Debt-to-income ratios are the province of mortgage calculators. One important ratio, referred to by mortgage professionals as your "front-end" or "top-end" ratio, is calculated by taking your proposed housing expense divided by your gross (before-tax) income. Most mortgage calculators set 28 percent as the desirable value for this ratio, and the front-end ratio determines how much of your monthly pre-tax income can be used for the principal and interest payment on your mortgage.

    The other ratio involves all of your loan payments – your housing expenses (including any HOA fees, if applicable) and your total monthly debts (but not utilities or other living expenses) -- divided by your gross monthly income. Home affordability calculators frequently set this number at 36 percent. This is called your "back-end" or "bottom-end" ratio. Note: Qualified mortgage standards allow for back-end DTIs of up to 43%, and you can chenge the back-end ratio the calculator uses.
  • Monthly obligations. While your mortgage lender cares about your car payments and credit card debt - and other debts you are required to pay - they really don’t care whether you have cable TV, the latest iPhone or even that you eat on a regular basis. Those monthly expenses are up to you to manage, and cable, smartphones and a few trips to the grocery store can easily add up to several hundred dollars each month.
  • Down payment. The minimum down payment for an FHA loan is 3.5 percent; for conventional loans, the minimum is 3 percent for certain buyers and 5 percent for most buyers. Certain loans, such as VA loans or USDA-backed loans, do not require a down payment, but there can still be reasons to make one.
  • Taxes. Today, it’s easy to get an idea on a home’s property taxes by looking at the listing online. You can also get in contact with the county tax office or ask a local Realtor to investigate for you. Most homeowners will have their property taxes paid from an escrow account attached to their monthly mortgage payments. One percent in taxes is equal to $1,000 per year for a $100,000 home.
  • Insurance. Lenders require homeowners insurance to cover your property. Contact an insurance company or ask a Realtor to estimate your homeowners insurance costs which will vary according to the type of property, cost and features of the home, and its location. To get a rough idea, you can ask a family member or friend what they pay for insurance (if their home is similar to the home you are interested in buying).
  • Homeowners association dues. If the property you purchase includes monthly HOA dues, don't forget to include those fees in your required monthly housing payments.
  • Mortgage insurance. If you make a down payment of less than 20 percent on a conventional loan, you will need to pay for private mortgage insurance. Use HSH’s PMI calculator to get an accurate monthly cost estimate for PMI. For FHA loans, there is an upfront and annual mortgage insurance premium.
  • Interest rate. You can check today's mortgage rates at HSH.com, but remember that your interest rate will depend on your credit score, the type of property you are buying, the type of mortgage you choose and the choices you make regarding paying fees and points. A lender will be able to give you a customized mortgage quote given your situation.
  • Loan term. While many buyers opt for a 30-year home loan, if you can afford higher monthly payments, you may want to consider a shorter loan term or even a different loan type. Shorter term loans have lower interest rates and cost you less over the life of the loan.

For an example calculation, lets assume you have a very good credit score, and you have a $60,000 annual income, $250 in monthly debt payments, $20,000 to use as a down payment, property taxes of 1.25% of the purchase price you can qualify for and annual homeowner's insurance premiums of about 0.5% of the home's value.

With a 4% mortgage interest rate and a 30-year mortgage term, and using a 28% housing ratio, this means you can utilize $1,400 per month for Principal, Interest, Taxes and Insurance; with your down payment of just 8.89% of the home purchase price, Private Mortgage Insurance costs will also be included in that $1,400 figure.

$1,400 per month qualifies to borrow a loan amount of $204,913; add your $20,000 down payment to this, and you can purchase a home of $224,913. Of course, you’ll still need cash for reserves and to cover the loan’s closing costs.

Your debt-to-income ratio as a percentage of your income is low enough so that the back-end "cap" of 36% of your gross monthly income doesn't come into play. In fact, the 36% cap means you can carry as much as $400 per month in debts and still qualify for the amount above.

If your DTI is above 36%, don't worry. Fannie Mae and Freddie Mac are now backing loans for borrowers with back-end debt ratios of as much as 50%. While less debt is better, more doesn't necessarily mean you can't qualify for a mortgage large enough to buy a great piece of real estate that you can call home.

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