What This Calculator Does
The Microapp House Affordability Calculator computes the maximum home price you can afford based on your income, down payment, existing debts, and standard housing cost assumptions. It uses the 28/36 DTI (debt-to-income) rule that mortgage lenders apply, with an optional 25/33 toggle for the "comfortable" budget that leaves room for the rest of your financial life.
Lender max (28/36):
• Max PITI: $2,100/mo (28% of $7,500 monthly gross)
• Less tax ($274), insurance ($125), PMI ($146): ~$1,555/mo for principal & interest
• Loan amount: ~$234,000
• Max home price: ~$274,000
Comfortable (25/33):
• Max PITI: $1,875/mo (25% of $7,500 monthly gross)
• Max home price: ~$247,000
The $27k difference is the room you keep for retirement, kids' education, vacations, and life.
The 28/36 Rule, Explained
The DTI (debt-to-income) rule is the standard mortgage underwriting test. Two ratios:
Front-end ratio: Housing cost (PITI = Principal + Interest + Tax + Insurance, plus PMI if under 20% down, plus HOA) divided by gross monthly income. The 28% threshold means housing should consume no more than 28% of your pre-tax income.
Back-end ratio: All monthly debt payments (PITI + car loans + student loans + minimum credit card payments + child support + alimony) divided by gross monthly income. The 36% threshold means total debt service should consume no more than 36% of your pre-tax income.
Lenders apply BOTH rules and approve based on the LOWER allowable home price. If you have no other debts, the front-end rule is usually the binding constraint. If you have significant other debts (car payments, student loans), the back-end rule often binds first because the housing budget shrinks by the amount of those other payments.
Why "What You Qualify For" ≠ "What You Should Buy"
The 28/36 rule was designed by underwriters to identify the line at which borrowers stop defaulting on their mortgages. It's not the line at which they can comfortably also build wealth, save for retirement, replace a broken furnace, or have any disposable income.
Consider what's left after housing + other debts at the lender's max:
| Use of income | At lender max (28/36) | At comfortable (25/33) |
|---|---|---|
| Housing (PITI + HOA) | 28% | 25% |
| Other debt service | 8% | 8% |
| Federal income tax (avg) | ~13% | ~13% |
| FICA (SS + Medicare) | ~7.65% | ~7.65% |
| State + local tax (avg) | ~5% | ~5% |
| Subtotal: fixed obligations | ~62% | ~59% |
| Available for everything else | ~38% | ~41% |
That ~38% (or ~41%) needs to cover: retirement contributions (recommended 15% of gross), groceries, utilities (not part of PITI), transportation costs beyond car payment (gas, repairs, insurance), childcare if any, healthcare beyond insurance premium, kids' education savings, emergency fund building, vacations, gifts, hobbies, and discretionary spending. The math is tight at the comfortable budget; impossible at the lender max for most households.
The Down Payment Lever
Larger down payment increases your max affordable home price in two ways: directly (every $1 of down payment is $1 of home price you can buy), and indirectly (avoiding PMI when you cross 20% down reduces monthly PITI, freeing budget for more loan).
But don't drain your emergency fund or stop retirement contributions to maximize down payment. Cash you put into the home is locked up — you can't get it back without selling. The "should I put 20% down" question depends on:
- Do you have 6+ months emergency fund AFTER the down payment? If not, put less down.
- Are you maxing your tax-advantaged retirement contributions (401k match + Roth IRA)? If not, prioritize those.
- Will the cash you'd put toward 20% earn more in low-cost index funds (~7%/year real) than the PMI cost (~1% of loan, ~5 years)? Usually yes for younger buyers.
For most first-time buyers, 5-10% down with PMI for 5-7 years is mathematically better than 20% down — provided you actually invest the difference.
The Other Debts Lever
If the back-end ratio is your binding constraint, paying off other debts BEFORE house hunting can dramatically increase your max home price. Example: $90k income, $400/month other debts → max ~$298k home. Same household with $0 other debts → max ~$340k home. The $42k increase in max home price comes from $4,800/year of debt payment freed up.
Strategy: if you have credit card debt, car loans within 2 years of payoff, or student loans you could accelerate, doing so before house hunting often beats saving more for down payment. Both increase max home price; debt payoff also reduces ongoing monthly cost AND improves credit score.
Other Factors Lenders Care About
The 28/36 rule is necessary but not sufficient. Other factors affecting your actual loan approval:
- Credit score: 740+ for best rates. Below 620 generally needs FHA. Score affects both approval probability and rate offered.
- Employment history: Lenders typically want 2+ years in the same field, stable income. Self-employed buyers need 2 years of tax returns showing income.
- Asset reserves: Most lenders require 2-6 months of mortgage payments in reserve AFTER closing — proof you can weather a temporary income disruption.
- Income type: W-2 income is preferred. Bonus income, commission, and self-employment income are typically averaged over 2 years and may be partially discounted.
- Property type: Single-family homes get the best rates. Condos sometimes face restrictions (HOA financial health requirements). Investment properties have higher down payment requirements (typically 20-25%).
- Loan type: Conventional, FHA, VA, USDA, jumbo — each has different DTI ceilings, down payment minimums, and PMI/MIP rules.
What This Calculator Doesn't Cover
Closing costs. 2-5% of loan amount, paid at closing separately from down payment. On a $300k home, plan for $6,000-$15,000 in closing costs.
Moving costs and immediate repairs. First-year homeowner expenses are higher than ongoing — appliances may need replacement, paint may be needed, immediate maintenance items may surface during inspection. Budget 1-3% of home value for first-year unexpected costs.
Long-term maintenance. Standard rule of thumb: 1-2% of home value per year for ongoing maintenance over the long term. On a $300k home, that's $3,000-$6,000/year — not part of PITI but real cost.
Utilities. Buying a larger home usually means higher utilities. Larger square footage = more to heat/cool. Older homes especially can have surprising utility bills. Not part of PITI but real monthly cost.
Common Mistakes
Buying at the lender's max. See the table above — lenders' max leaves no room for retirement, kids, or life. Aim for 70-80% of max.
Forgetting to factor in property tax rate by state. Texas at 2% property tax on a $400k home is $8,000/year — a real chunk of your housing budget. Hawaii at 0.4% on the same home is $1,600/year. Same home, different state, very different affordability.
Underestimating maintenance and ongoing costs. A $300k home isn't $300k of cost — it's $300k of purchase plus $3,000-$6,000/year of maintenance plus higher utilities plus property tax that increases over time. The all-in cost of homeownership is meaningfully higher than the mortgage.
Letting the lender's pre-approval letter define your budget. The lender wants to lend you the maximum they can — that's how they make money. Use the calculator to set YOUR budget, then ignore what the bank says you can borrow above that.
Educational Tool — Not Financial Advice or a Loan Offer
This calculator implements the standard 28/36 DTI rule with iterative tax/insurance/PMI computation. Real lender approvals consider credit score, employment history, asset reserves, income stability, and dozens of other factors. For a real loan offer, get a Loan Estimate from at least three lenders. For advice on whether buying makes sense at all (vs renting), consult a fee-only financial planner.
Related Tools
For the forward direction (you have a target home price, what's the monthly cost?), use the Mortgage Calculator. For non-mortgage debt math (car loans, personal loans), the Loan Calculator handles it. Track the home as part of your overall financial picture with the Net Worth Calculator.