Calculator for Savers

How Much House Can You Really Afford? The Complete Truth

Most home affordability calculators tell you the maximum loan amount a lender will approve. That number is almost always higher than what you can comfortably afford. Lenders care about getting paid back — they don't care about your retirement savings, your emergency fund, or your lifestyle. This calculator shows you the number that actually matters: the true all-in monthly cost, and how much house fits your life.

The Two Rules Lenders Use: 28% and 36%

The standard underwriting guidelines that govern mortgage lending are based on two debt-to-income ratios. The front-end DTI (or housing ratio) caps your total housing payment — principal, interest, property taxes, and insurance — at 28% of gross monthly income. The back-end DTI caps all monthly debt obligations — housing plus car loans, student loans, credit cards — at 36% of gross income. Some lenders go up to 43–50% back-end DTI for strong borrowers, but the conservative 28/36 rule protects you from becoming "house poor."

Here's what house-poor looks like in practice: a household earning $100,000/year approves for a $550,000 mortgage at 7%. Their PITI is $3,890/month — 47% of gross income. After taxes, take-home is roughly $6,500/month. Housing eats 60% of that, leaving $2,600 for food, transport, childcare, healthcare, entertainment, savings, and everything else. That's technically approved but practically unworkable.

What Most Calculators Hide: The Full Monthly Cost

The mortgage payment is only the starting point. A complete picture of monthly homeownership costs includes: principal and interest (the loan payment), property taxes (0.5–2.5% of home value annually, collected monthly in escrow), homeowner's insurance (typically $100–$250/month), PMI if your down payment is under 20% (0.5–1.5% of the loan per year), HOA fees if applicable, and a maintenance reserve — money set aside for the inevitable repairs and replacements every home requires.

That maintenance reserve is critical and routinely ignored. The 1% rule says budget at least 1% of your home's value per year for maintenance. On a $400,000 home, that's $4,000/year — $333/month — for roof repairs, HVAC servicing, plumbing, appliances, and the hundred other things that break. Older homes often need 1.5–2%. Skip this reserve and you'll face crisis-mode borrowing every time something major fails.

The Down Payment Decision: 5% vs 10% vs 20%

The conventional wisdom says put 20% down to avoid PMI. But that advice deserves scrutiny. On a $400,000 home, 20% down requires $80,000 in cash — capital that could otherwise be invested at 7–10% annually. PMI on the same loan at 0.85% costs $238/month and disappears once you reach 20% equity (typically 5–9 years depending on payment and appreciation).

The math: $80,000 invested at 7% for 7 years grows to $128,600 — a gain of $48,600. PMI over the same 7 years costs roughly $20,000. The investment opportunity cost far exceeds the PMI cost. That said, a larger down payment means lower monthly payments, lower loan balance, and easier qualification. The right answer depends on your specific numbers, which is exactly what this calculator models.

How Existing Debts Affect What You Can Borrow

Every dollar of monthly debt payment reduces your home buying power significantly. A $400/month car payment reduces the maximum mortgage payment the 36% back-end rule allows by $400 — which translates to roughly $55,000–$65,000 less home you can buy. Paying off a car loan or student loan before buying a home can dramatically expand your options and improve loan terms.

Common Mistakes First-Time Buyers Make

Buying the maximum the bank approves. Lenders optimise for loan volume, not your financial health. Their maximum is a ceiling, not a target. Stay comfortably below it.

Forgetting closing costs. Closing costs typically run 2–5% of the purchase price — $8,000–$20,000 on a $400,000 home — due at signing. These are in addition to your down payment. Many buyers drain their emergency fund at closing, leaving them financially exposed on day one of homeownership.

Ignoring the opportunity cost of a down payment. The money tied up in a down payment isn't earning investment returns. Factor this into your rent-vs-buy analysis. Use our Rent vs Buy Calculator to run the complete comparison for your specific situation.