How much house can I afford? The math lenders actually use

The honest answer has two parts: what a lender will approve, and what you can live with. They are rarely the same number, and the gap is where first-time buyers get into trouble.

What the lender computes

Underwriting looks at your debt-to-income ratio (DTI): monthly debt payments divided by gross (pre-tax) monthly income. Two versions matter. The front-end ratio counts only the proposed housing payment — principal, interest, property taxes, homeowners insurance, mortgage insurance and any HOA dues (the “PITIA”). The back-end ratio adds every other recurring debt on your credit report: car loans, student loans, minimum credit card payments, child support.

Typical ceilings: conventional loans run through automated underwriting generally allow a back-end DTI up to 45%, sometimes 50% with strong compensating factors; FHA commonly allows up to 43% manually and higher with automated approval; many lenders apply a 28% to 31% front-end guideline. These are limits, not targets.

A worked example

Household income of $90,000 a year is $7,500 a month. At a 43% back-end ceiling, total debt payments may not exceed $3,225. If you already pay $450 on a car and $250 on student loans, the housing payment is capped at roughly $2,525 — including taxes, insurance and PMI. At a 7% rate, with taxes and insurance of about $500 and PMI of $150, the remaining $1,875 supports a loan of roughly $280,000. With a 5% down payment that implies a price near $295,000, not the $450,000 an online calculator that ignores your other debts might show.

Use our mortgage payment tables to see principal and interest at different amounts and rates, then add local taxes and insurance.

What you can actually live with

DTI uses gross income; your budget runs on take-home pay. A 43% DTI on gross income often means 55% or more of your net paycheck going to debt. Build your own number from the bottom up: take-home pay minus savings, retirement contributions, child care, transportation, food, and a maintenance reserve of 1% of the home’s value per year. What remains is your real housing budget.

Levers that change the answer

Paying off a small debt before applying can remove its whole payment from the ratio — often worth more than a larger down payment.
A larger down payment lowers the loan and may remove PMI at 20%.
Rate: one percentage point changes the payment on a $300,000 loan by roughly $200 a month.
Taxes and insurance vary enormously by state — check your state’s first-time buyer page for typical property tax rates.

Frequently asked questions

Does the lender count my bonus or overtime?

Usually only with a two-year history and a reasonable expectation it will continue. Variable income is averaged, and a declining trend may be discounted or excluded.

Do student loans in deferment count?

Yes. If no payment shows on the credit report, conventional underwriting typically uses 1% of the balance (or the documented fully amortizing payment); FHA uses 0.5% of the balance. Income-driven payments are usually accepted if documented.

Is 43% DTI a hard limit?

No. It is a common guideline tied to the “qualified mortgage” rules and FHA manual underwriting, but automated approvals routinely go higher with strong credit and reserves. A lender that approves you at 50% is not doing you a favor if your take-home budget cannot carry it.