Home Affordability Calculator

Before house-hunting, it helps to know a realistic price range. Lenders assess affordability mainly through your income, existing debts and the size of your down payment.

This calculator applies the widely used 28/36 rule (housing costs up to about 28% of gross income, and total debt payments up to about 36%) to estimate the home price you could comfortably afford.

Lenders apply two debt-to-income tests, not one, and an application has to satisfy both. The front-end ratio looks at housing costs alone, commonly capped around 28% of gross monthly income. The back-end ratio looks at housing plus every other monthly debt obligation, and is commonly capped around 36%, with 43% often treated as an outer limit for qualified mortgages.

On a $75,000 salary, gross monthly income is $6,250. The 28% front-end test allows about $1,750 a month for housing. The 36% back-end test allows $2,250 for all debt combined, so with $700 a month of car and student loan payments, only $1,550 remains for housing. Here the back-end test is the one that limits you, and it takes $200 a month off what you could borrow on the housing test alone.

• Paying down or clearing an instalment loan before you apply can raise what you can borrow by more than adding the same amount to your down payment.
• The housing figure is the full PITI payment (principal, interest, taxes and insurance) plus HOA fees where they apply, not just principal and interest.
• Credit card balances count at their minimum payment, so a large balance with a small minimum uses up less of the ratio than an instalment loan of the same size.

These ratios are lending rules designed to predict whether you'll repay, and they're worked out on gross income: before income tax, before payroll deductions, before retirement contributions. But nobody pays a mortgage out of gross income.

The difference is big. If you're approved at the top of a 36% back-end ratio, you're committing well over a third of your pre-tax income, which is a much larger share of what actually reaches your bank account. Costs that fall outside the ratio entirely (childcare, healthcare, commuting, retirement saving, maintenance on the property itself) come out of what is left.

• Maintenance is commonly estimated at 1% of the property value a year, and it doesn't appear in any affordability test.
• Borrowing the maximum leaves you no room to cope with a rate rise at renewal, a spell of lower income or a big repair.
• Working backwards from a monthly payment you're comfortable with gives you a more useful number than working forwards from the most a lender will approve.