How to use the affordability calculator
Key takeaways
04 · ideas- Front-end ratio: housing costs should stay under 28% of gross income
- Back-end ratio (DTI): all debts should stay under 43% total
- A $7,000/month income supports roughly $280k–$350k at current rates
- Down payment size directly affects both price range and monthly cost
Basic level
The essentials · 1 min
The affordability calculator answers: how much home can I actually afford? It uses two inputs — your income and your existing debts — and two guardrails from the lending industry.
The two rules lenders use:- Housing ratio (front-end DTI): Your total monthly housing costs (PITI) should be no more than 28% of gross monthly income
- Total DTI (back-end): All monthly debt payments (housing + car + student loans + credit cards) should be no more than 36–43% of gross income
These aren't just suggestions — they're the thresholds most lenders require for loan approval.
Quick estimate:- Monthly income × 28% = max housing payment (PITI)
- Subtract taxes + insurance estimate to get max P&I
- Work backward to find the home price
Intermediate level
How it applies · 2 min
Running the numbers
Example: $7,000/month gross income, $400/month in existing debts (car + student loan)
Step 1: Max housing payment (28% rule):
$7,000 × 0.28 = $1,960/month total PITI
Step 2: Max total debt (43% rule):
$7,000 × 0.43 = $3,010/month − $400 existing = $2,610 available for housing
→ The binding constraint is the 28% rule: $1,960/month
Step 3: Subtract taxes and insurance estimates:
Property tax ~$350/month + insurance ~$100/month = $450/month
P&I budget: $1,960 − $450 = $1,510/month
Step 4: Convert P&I to home price (at 7.5%, 30 years):
$1,510 monthly payment ↔ ~$215,000 loan
With 10% down: home price ≈ $239,000
With 20% down: home price ≈ $269,000
Conservative vs stretch ranges
The calculator shows three scenarios:- Conservative (36% DTI): What you can comfortably afford without financial stress
- Moderate (43% DTI): Standard lender maximum — requires disciplined budgeting
- Stretch (50% DTI): Possible with some loan types (FHA, VA) but leaves very little margin
| Monthly gross income | Conservative | Moderate | Stretch |
|---|---|---|---|
| $5,000 | ~$165k | ~$210k | ~$240k |
| $7,000 | ~$230k | ~$295k | ~$335k |
| $10,000 | ~$330k | ~$420k | ~$480k |
Assumes 7.5% rate, 30-year term, 20% down, $300/month other debts
Advanced level
The math, step by step · 2 min
The present value of housing cost
The true cost of a mortgage is not just the sticker price — it's the opportunity cost of the down payment plus the discounted value of all future payments.
Total cost of homeownership at purchase price H, down payment D, loan P = H - D, rate r, term n, including property tax t, insurance i, maintenance m (typically 1–2% of value annually):
Where H_n is the expected future home value (offsetting costs through appreciation).
The rent vs. buy version of this: Let R = monthly rent, \delta = annual rent growth, g = home appreciation rate:
The buy advantage is positive when appreciation and rent savings exceed carrying costs in present value terms. At current rates (~7.5%), renting is often cheaper in the short-term (< 5 years) but buying typically wins over 7+ years in markets with normal appreciation.