How this calculation works
The Home Affordability Calculator estimates the maximum and conservative home purchase price you can qualify for using standard Fannie Mae 28/36 debt-to-income (DTI) underwriting guidelines.
Mathematical formula and logic
Max Monthly Housing Payment = min(Gross Monthly Income × 28%, (Gross Monthly Income × 36%) - Monthly Debts). Max Loan = PV(rate/12, term×12, Max Payment). Max Home Price = Max Loan + Down Payment.
Worked example
With $95,000 annual income ($7,917/mo), $500 monthly debts, $40,000 down payment, and 6.5% interest on a 30-year term: Max qualifying home purchase price is approximately $398,000 ($358,000 mortgage + $40,000 down payment).
Calculation assumptions
- Standard 28/36 DTI ratio rule (housing debt ≤ 28% of gross income, total debt ≤ 36%).
- Property taxes and insurance estimated at 1.5% of purchase price annually.
Frequently asked questions
What is the 28/36 rule in mortgage affordability?
Lenders prefer that your housing costs (PITI: Principal, Interest, Taxes, Insurance) not exceed 28% of your gross monthly income, and your total monthly debt payments (housing + student loans, car loans, credit cards) not exceed 36%.
How does down payment affect affordability?
A larger down payment increases your purchasing power dollar-for-dollar and eliminates Private Mortgage Insurance (PMI) if you put down 20% or more, significantly lowering monthly payments.
What credit score is needed to buy a house?
Conventional conforming loans typically require a minimum FICO score of 620. FHA loans allow scores down to 580 with 3.5% down payment (or 500 with 10% down).
Can I qualify for a mortgage with a DTI above 36%?
Yes, many modern lenders and government-backed programs (FHA, VA, Fannie Mae Desktop Underwriter) approve DTIs up to 43% to 45% with strong compensating factors like excellent credit or cash reserves.
What hidden costs should first-time home buyers prepare for?
In addition to your down payment, budget for closing costs (2-5% of loan amount), moving expenses, home inspections ($400-$600), initial repair reserves, and property tax escrows.
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