You earn $100,000/year, have no debt, and saved $40,000 for a down payment. What's the maximum home price you should target? Most people assume 3-4x salary, suggesting $300,000-400,000. But lenders use stricter metrics: your housing costs (mortgage, insurance, taxes, HOA) shouldn't exceed 28% of gross income, and your total debt (including the mortgage) shouldn't exceed 43% of gross income. On $100,000/year, housing costs max out at $2,333/month. A $300,000 home with a $260,000 mortgage at 7% costs roughly $1,727/month in principal+interest—”leaving only $606/month for property taxes, insurance, and HOA. In expensive states, property taxes alone are $300-400/month on a $300,000 home, leaving almost nothing for insurance and HOA. Your true max price is likely $200,000-250,000, not $300,000. Many buyers learn this painfully after qualifying for a large mortgage (banks will lend $400,000 to someone earning $100k) and realizing the payment is unaffordable long-term.
The math works backward: Start with maximum housing cost ($2,333/month on $100k salary), subtract property taxes and insurance (estimate ₹300/month in an affordable state), and you have roughly $2,033/month for mortgage. A 7% interest rate on a 30-year mortgage means $2,033/month buys you about $290,000 in loans—”requiring a $40,000 down payment to hit $330,000 total price. But property taxes vary dramatically: $300/month in Texas, Florida, or Nevada might be $800/month in New York or New Jersey on the same home price. Your max affordability in New Jersey is $200,000 while a Texan's max is $350,000, same income and debt situation. Some buyers don't account for PMI (mortgage insurance, required if down payment is under 20%): that $40,000 down payment on a $330,000 home is only 12%, triggering $3,000-5,000/year in PMI—”effectively raising your true monthly cost $250-400 and dropping your affordable price by $50,000+.
This calculator determines your maximum home price using your income, debt obligations, down payment, expected interest rate, and state/local property tax rates. It accounts for PMI if your down payment is under 20%, includes realistic assumptions for insurance, and applies strict 28% housing DTI and 43% total DTI limits. Enter your situation and it shows the realistic price range you should target—”not the maximum the bank will lend, but the maximum you can comfortably afford. Use this to calibrate your home search and avoid stretching beyond your means.
The 28/36 Rule (Now 28/43)
Traditional rule: 28% income for housing, 36% for all debt. Updated: 28% housing, 43% total debt. Example: $5k monthly income → max $1,400 housing, $2,150 total debt. If existing debt = $500, housing budget = $1,650. Lenders use 43% now; some still use 36%.
Debt-To-Income Ratio Explained
DTI = Monthly debt / Monthly income. Lenders approve up to 43% DTI. Example: $5k income, $2,150 debt = 43% DTI (max). Add $1 debt = rejected. DTI is hardest constraint. Existing debt (car loans, student loans, credit cards) counts.
Down Payment Impact
3% down: max price $300k (need PMI insurance). 10% down: max price $350k. 20% down: max price $380k (no PMI). More down = higher price approved, lower payment. PMI costs 0.5-1.5% of loan annually; 20% down avoids it.
Hidden Housing Costs
Principal + interest (mortgage), property tax (1-2% annually), home insurance ($100-300/month), HOA fees (varies), utilities (not included in DTI). Total monthly = $1,200-2,000+ for $300k home. Budget for all, not just mortgage.
Pre-Approval vs. Pre-Qualification
Pre-qual: rough estimate, no documentation. Pre-approval: verified income/assets, likely to get loan. Get pre-approved before house hunting. Shows sellers you're serious and locked in rate.