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Compare Mortgage Rates
Rates shown are for illustration. Click to see actual rates from our partners.
| Lender | Rate (APR) | Monthly Payment | Fees | |
|---|---|---|---|---|
| A LendFirst Bank | 6.25% | $1,847 | $2,100 | View Offer |
| B QuickRate Financial | 6.50% | $1,896 | $1,800 | View Offer |
| C HomeSecure Lending | 6.75% | $1,946 | $1,500 | View Offer |
How Lenders Determine What You Can Afford
Mortgage lenders evaluate your borrowing capacity using a combination of your gross income, existing debts, credit score, and the size of your down payment. They calculate two key ratios: the front-end ratio (housing costs as a percentage of income) and the back-end ratio (total debt payments as a percentage of income). Most conventional lenders prefer a front-end ratio below 28% and a back-end ratio below 36%, though some loan programs allow higher limits.
The 28/36 Rule Explained
The 28/36 rule is a widely used guideline in mortgage lending. The first number means your total housing costs, including mortgage payment, property taxes, and insurance, should not exceed 28% of your gross monthly income. The second number means your total monthly debt obligations, including housing plus car loans, student loans, and credit cards, should stay below 36%. These thresholds help ensure you can comfortably manage payments while covering other living expenses.
How Your Debt-to-Income Ratio Matters
Your debt-to-income ratio (DTI) is one of the most important factors lenders consider when determining your maximum loan amount. DTI is calculated by dividing your total monthly debt payments by your gross monthly income. Most conventional mortgages require a DTI below 43%, while FHA loans may accept up to 50% in some cases. Reducing existing debts before applying for a mortgage can significantly increase the home price you qualify for.
Down Payment and Home Affordability
Your down payment directly impacts how much home you can afford and your ongoing costs. A 20% down payment eliminates the requirement for Private Mortgage Insurance (PMI), which typically costs 0.5-1.5% of the loan amount per year. For example, on a $300,000 home, a 20% down payment ($60,000) versus a 5% down payment ($15,000) not only reduces your monthly mortgage payment but also eliminates approximately $100-$300 in monthly PMI charges.
Frequently Asked Questions
The 28/36 rule is a guideline lenders use: spend no more than 28% of gross income on housing costs and no more than 36% on total debt. This calculator uses these ratios to estimate your maximum home price.
Your debt-to-income ratio (DTI) is your total monthly debt payments divided by gross monthly income. Most lenders require a DTI below 43%, with 36% being preferred. Higher debt reduces how much house you can afford.
Yes. A larger down payment reduces your loan amount, which lowers your monthly payment. This effectively increases the maximum home price you can afford within your budget.
Budget for property taxes (0.5%–2.5% of home value), homeowners insurance (~$1,200–$2,000/year), maintenance (1% of home value/year), and PMI if your down payment is under 20%.