Your first home starts with a plan
A practical guide to the numbers, the process, and your next big step.
Read the guideHow to calculate affordability
Home affordability starts with a monthly housing budget. This calculator works backward from income, debts, and your chosen spending limits to estimate a loan amount and home price. The result is a planning estimate, not the amount a lender has approved. Follow the steps below to understand the calculation and adjust it to your circumstances.
1. Convert annual income to monthly income
Enter the household's annual income before taxes, including a co-borrower's income when applicable. Divide that figure by 12 to find gross monthly income. For example, $110,000 per year is about $9,166.67 per month. Use income you can reasonably expect to continue; the lender will decide which income it can document and count. Also review your take-home pay, because taxes and deductions reduce the cash available for everyday spending.
2. Account for existing monthly debts
Add recurring debt payments, such as car loans, student loans, credit-card minimums, and other required loan payments. Enter these separately from the proposed new housing payment. Debt-to-income ratio (DTI) compares monthly debt obligations with gross monthly income. Different lenders and loan products use different limits, so the calculator's default ratios are adjustable planning assumptions. See the CFPB explanation of DTI.
3. Apply both housing and total-debt limits
The housing-to-income limit sets a budget for housing alone. The total DTI limit sets a budget for housing plus existing debts. The calculator chooses the lower of these two housing amounts and never allows a negative housing budget.
- Housing limit: gross monthly income × housing-to-income percentage.
- Debt-based housing limit: gross monthly income × total DTI percentage − existing monthly debts.
With $110,000 in annual income, $450 in monthly debts, a 28% housing limit, and a 36% total DTI limit, these amounts are about $2,566.67 and $2,850 per month. The calculator therefore uses $2,566.67 as the monthly housing budget. The 28% and 36% figures describe this example; they are not universal approval thresholds.
4. Separate the loan payment from other housing costs
Subtract your monthly estimates for property tax, homeowners insurance, mortgage insurance, and homeowners association fees. If those costs total $550, the example leaves about $2,016.67 for principal and interest. Enter monthly amounts here: divide an annual tax bill or insurance premium by 12. If non-loan costs use up the entire housing budget, the model leaves no room for a mortgage payment.
Use estimates for the property you are considering. Taxes, insurance, and mortgage insurance can change with the home price, loan size, and down payment, so revisit these inputs as your search becomes more specific. The CFPB's affordability guidance also highlights maintenance, savings goals, and other household expenses.
5. Estimate the loan amount, then add the down payment
The interest rate and loan term determine how much you can borrow for the available principal-and-interest payment. At an illustrative fixed rate of 6.5% over 30 years, $2,016.67 per month supports approximately $319,058 in loan principal. Adding a $60,000 down payment produces an estimated home price of about $379,058. Calculations use unrounded amounts internally, so displayed rounded figures may differ slightly.
A higher rate reduces the loan supported by the same payment budget. A shorter term generally does the same, while reducing total interest at the same balance and rate. After estimating a price range, use the mortgage calculator to explore the payment breakdown and amortization schedule.
6. Check upfront cash and your real household budget
The available down payment should be money you can put toward the purchase after setting aside closing costs, moving expenses, and cash reserves. This calculator does not deduct those amounts automatically. Review utilities, repairs, childcare, transportation, and savings alongside the modeled housing payment. Try a higher interest rate or insurance estimate to see how much flexibility your budget has.
7. Treat the result as a starting point for preapproval
A lender reviews income, assets, debts, credit, property details, and program requirements before deciding what it can offer. Even a preapproval is conditional. Your comfortable price range may be below the lender's maximum, and this calculator does not establish eligibility. Read the CFPB's guide to preapproval letters and compare actual loan offers when you are ready to proceed.
