How Much House Can I Afford? Payments, Ratios and Down Payments

The price of a home you can afford is not a single number. It comes out of a chain of figures: your income, the debts you already carry, the interest rate, the loan term, the down payment, and the taxes and insurance that ride along with the mortgage. Lenders look at that chain one way; your own monthly budget may look at it another. This guide walks through each link with numbers you can rerun in the mortgage calculator.

Start with the monthly payment, not the price

A home price only matters through the monthly payment it creates and the cash it requires up front. Working backward from a monthly figure is usually clearer than starting from a list price, because the same payment can support very different prices depending on the rate and down payment.

The Consumer Financial Protection Bureau describes the total monthly mortgage payment as principal plus interest, plus mortgage insurance if it applies, plus escrow for homeowners insurance and property tax. That combined figure, often shortened to PITI, is the one to budget around. A quote for principal and interest alone can be several hundred dollars a month lower than what actually leaves your account.

Debt-to-income ratios

Lenders gauge how much you can borrow largely through your debt-to-income ratio (DTI). The CFPB defines it as all your monthly debt payments divided by your gross monthly income. Someone with $2,000 of monthly debt payments and $6,000 of gross monthly income has a DTI of about 33%.

Two versions are commonly discussed:

• Front-end ratio. Housing costs alone (the full mortgage payment, plus HOA dues if any) divided by gross monthly income.
• Back-end ratio. Housing costs plus all other monthly debt payments, such as car loans, student loans and minimum credit card payments, divided by gross monthly income.

The 28/36 rule of thumb

A widely cited rule of thumb caps the front-end ratio at 28% and the back-end ratio at 36%. It is a starting point for planning, not a lending standard. The CFPB notes that different loan products and lenders have different DTI limits, and some programs allow higher ratios. A lender’s maximum is also not the same as a comfortable payment: it does not know about childcare, commuting costs, savings goals or irregular income.

A worked example

Take a household with $90,000 of gross annual income, or $7,500 a month, and $450 a month of existing debt payments.

1. Front-end limit: 28% × $7,500 = $2,100 a month for housing.
2. Back-end limit: 36% × $7,500 = $2,700 for all debts. Subtracting the existing $450 leaves $2,250 for housing.
3. Binding limit: the lower of the two, $2,100.
4. Remove taxes and insurance: if property tax and homeowners insurance are estimated at $500 a month together, $1,600 is left for principal and interest.
5. Convert to a loan amount: at 6.5% over 30 years, $1,600 a month repays a loan of about $253,137.

With a 10% down payment, that loan corresponds to a home price of about $281,264; with 20% down, about $316,422. These figures hold the $500 tax-and-insurance estimate fixed for simplicity; in practice both rise with the home’s value. You can check the percentages with the percentage calculator.

How the rate changes the answer

The same $1,600 of principal and interest supports a different loan at each rate, all on a 30-year term:

Interest rate	Loan supported by $1,600 a month	Price with 10% down	Price with 20% down
5.5%	$281,794.82	$313,105.36	$352,243.53
6.5%	$253,137.31	$281,263.68	$316,421.64
7.5%	$228,828.20	$254,253.56	$286,035.25

A two-point difference in rate moves the supported loan by about $53,000. The term matters as well: at 6% over 15 years, the same $1,600 supports a loan of about $189,606, because principal is repaid twice as fast.

The parts of PITI

Principal and interest

This is the loan payment itself, set by the amount borrowed, the rate and the term. On a fixed-rate loan it does not change. The mortgage calculator works it out, and the guide to how loan amortization works explains why early payments are mostly interest.

Property tax

Property tax is set locally and varies widely from one area to the next, so a figure from the listing, the county assessor or recent tax bills is more reliable than a national average. It is often reassessed, which can raise the payment after purchase.

Homeowners insurance

Lenders generally require coverage on the home. Premiums depend on location, the structure and the policy, so a quote is the most accurate input.

Escrow

Many lenders collect tax and insurance monthly and pay the bills from an escrow account. The CFPB points out that because property taxes and premiums can change from year to year, the escrow payment, and with it the total monthly payment, changes as well.

Here is how the pieces add up for a $360,000 home with 10% down at 6.5% over 30 years, with $4,320 a year in property tax and $1,680 a year in insurance:

Component	Monthly amount
Principal and interest on $324,000	$2,047.90
Property tax ($4,320 ÷ 12)	$360.00
Homeowners insurance ($1,680 ÷ 12)	$140.00
Total before mortgage insurance and HOA	$2,547.90

Down payment and PMI

A larger down payment lowers the loan amount, the monthly payment and the total interest. On a $300,000 home at 6.5% over 30 years:

Down payment	Loan amount	Principal and interest	Total interest over 30 years
5% ($15,000)	$285,000.00	$1,801.39	$363,501.79
10% ($30,000)	$270,000.00	$1,706.58	$344,370.12
20% ($60,000)	$240,000.00	$1,516.96	$306,106.77

The table leaves out one cost that usually applies to the first two rows. According to the CFPB, private mortgage insurance (PMI) is generally required on a conventional loan with a down payment of less than 20% of the purchase price. PMI protects the lender, not the borrower, and it can be paid monthly, up front at closing, or both. Its cost depends on the lender, credit profile and loan-to-value ratio, so a lender quote is the way to price it.

PMI does not last forever on most conventional loans. Under the federal rules the CFPB summarizes, you can ask to remove it once the balance is scheduled to reach 80% of the home’s original value, and the servicer must end it automatically at 78% or at the midpoint of the loan’s term if you are current on payments. FHA and VA loans have their own rules.

The trade-off runs both ways. A smaller down payment preserves cash for closing costs, moving and reserves, but adds PMI and interest. A larger one lowers the payment but ties up more savings in the home.

Cash needed at closing

The down payment is not the only up-front cost. Closing costs, such as lender fees, title charges, prepaid interest and initial escrow deposits, are due at settlement. After you apply, a lender must give you a Loan Estimate within three business days. The CFPB describes it as a standardized form showing the expected rate, monthly payment, closing costs, and estimated taxes and insurance, which makes offers from different lenders easier to compare side by side.

Costs outside the mortgage

Lender ratios do not include the ongoing costs of owning a home: maintenance and repairs, utilities, and any furnishing or moving costs. Renters may have had some of these covered by a landlord. Leaving room in the budget for them is part of what separates the maximum a lender approves from a payment that is sustainable month to month.

Putting it together

1. Decide on a monthly housing figure from your own budget, then check it against the 28% and 36% ratios.
2. Subtract realistic estimates for property tax, insurance, HOA dues and, below 20% down, PMI.
3. Use the remainder as the principal-and-interest target and try different prices, rates and down payments in the mortgage calculator until the total matches.
4. Check the cash side: down payment plus closing costs plus reserves.
5. Compare Loan Estimates from more than one lender, looking at both the rate and the APR.

For non-mortgage debts that feed into the back-end ratio, the loan calculator shows how a car or personal loan payment is built, and the guide to APR vs. APY explains the annual rates that appear on loan disclosures.

Sources

1. What is a debt-to-income ratio? — Consumer Financial Protection Bureau. Checked October 4, 2026.
2. On a mortgage, what's the difference between my principal and interest payment and my total monthly payment? — Consumer Financial Protection Bureau. Checked October 4, 2026.
3. What is an escrow or impound account? — Consumer Financial Protection Bureau. Checked October 4, 2026.
4. What is private mortgage insurance? — Consumer Financial Protection Bureau. Checked October 4, 2026.
5. When can I remove private mortgage insurance (PMI) from my loan? — Consumer Financial Protection Bureau. Checked October 4, 2026.
6. What is a Loan Estimate? — Consumer Financial Protection Bureau. Checked October 4, 2026.