"The internet says I can afford a $450,000 house. My gut says that is insane."
That was a client last week, and she was not wrong. Online calculators give you a number. They do not give you the full picture. They do not account for the fact that you like eating out twice a week, or that your car needs new tires, or that your kid starts daycare in September.
Let us do this differently. Let us talk about what you can actually afford, not what a formula says you can technically qualify for.
What Is a Debt-to-Income Ratio (DTI)?
Your debt-to-income ratio is the percentage of your gross monthly income that goes toward monthly debt payments. Lenders use DTI as one of the primary factors in determining how much you can borrow. It is calculated by dividing your total monthly debt payments by your gross monthly income and multiplying by 100.
There are two types:
- Front-end DTI: Your housing costs (mortgage payment, property taxes, insurance, HOA) divided by your gross monthly income
- Back-end DTI: All monthly debt payments (housing costs plus car payments, student loans, credit cards, personal loans) divided by your gross monthly income
Most lenders want your front-end DTI at or below 28% and your back-end DTI at or below 43%. FHA loans allow up to 50% back-end DTI in some cases, but just because you can does not mean you should.
The 28/36 Rule: Your Starting Point
The 28/36 rule is the most widely used guideline for affordable housing costs.
28% rule: Your total monthly housing costs should not exceed 28% of your gross monthly income. Housing costs include your mortgage principal, interest, property taxes, homeowner's insurance, and any HOA fees.
36% rule: Your total monthly debt payments (housing plus everything else) should not exceed 36% of your gross monthly income.
This is a guideline, not a law. Some buyers comfortably spend 30% on housing. Others feel stretched at 25%. Your comfort level depends on your lifestyle, other financial goals, and how much financial cushion you want.
Real Examples at Different Income Levels
Let us plug in real numbers. These examples assume a 30-year fixed rate at 6.2%, 5% down payment, $3,000/year in property taxes, $1,500/year in homeowner's insurance, and no HOA.
Important: These are estimates based on the 28% rule with minimal other debt. Your actual number depends on your credit score, existing debts, down payment amount, and local tax rates. Use our affordability calculator for a personalized estimate.
What Lenders Actually Look At
Your income is just one piece. Here is everything lenders evaluate when deciding how much you can borrow:
Credit score. Your score affects your rate, which affects your monthly payment, which affects how much house you can afford. The difference between a 680 and a 760 credit score can mean 0.25-0.5% in rate, which translates to $30,000-$50,000 in buying power on a 30-year loan.
Employment history. Lenders want to see at least 2 years of stable employment. Self-employed borrowers need 2 years of tax returns showing consistent income. Gaps in employment require explanation.
Down payment amount. A larger down payment means a smaller loan, which means a lower monthly payment and more buying power. It also affects whether you pay mortgage insurance and what rate you qualify for.
Existing debt. Your car payment, student loans, credit card minimums, and any other monthly obligations reduce how much you can borrow. Paying off a $350 car payment could increase your buying power by $50,000 or more.
Cash reserves. Most lenders want to see 2-3 months of mortgage payments in savings after your down payment and closing costs. Some loan programs require more.
Property taxes and insurance. These vary wildly by location. A $350,000 home in Texas might have $8,000/year in property taxes, while the same-priced home in Colorado might have $2,500. That difference alone changes your buying power by $40,000-$50,000.
The Hidden Costs Most Calculators Ignore
Here is where that "gut feeling" your client mentioned comes in. Your mortgage payment is not the full cost of owning a home.
Maintenance and repairs: 1-2% of home value per year. On a $350,000 home, budget $3,500-$7,000 annually for things like HVAC servicing, plumbing issues, appliance replacements, and general upkeep. Older homes tend to cost more.
Utilities: $200-$400/month. If you are coming from a small apartment, your utility costs will likely increase. Larger space means higher electric, gas, water, and trash bills.
Furnishing: $5,000-$15,000. Your new home probably has rooms your apartment did not. You will want to furnish them. Budget for this separately from your down payment savings.
Yard and exterior maintenance: $100-$300/month. Lawn care, landscaping, snow removal (depending on where you live), gutter cleaning, and pressure washing add up.
HOA fees (if applicable): $100-$500/month. Condos and planned communities often have HOA dues that are not optional. These are included in your DTI calculation but sometimes surprise buyers.
A More Honest Affordability Formula
Instead of just the 28/36 rule, try this approach:
Step 1: Calculate 28% of your gross monthly income. That is your maximum housing cost according to standard guidelines.
Step 2: Subtract $300-$500 for maintenance, utilities increases, and other homeownership costs that are not part of your mortgage payment.
Step 3: The remaining number is a more realistic target for your mortgage payment (principal, interest, taxes, insurance).
For example, if your household income is $100,000/year:
- 28% of gross monthly ($8,333) = $2,333
- Subtract $400 for hidden costs = $1,933
- Your realistic monthly mortgage target = $1,933
- That supports roughly a $290,000-$310,000 home instead of $350,000
Is this more conservative than what a lender will approve you for? Yes. Will it let you sleep at night and still enjoy your life? Also yes.
How CMS Mortgage Helps You Find Your Number
At CMS Mortgage, we do not just tell you the maximum you qualify for. We help you find the number that fits your life.
As a Top 50 National Brokerage with 50+ lenders, we can compare loan programs across dozens of options. An FHA loan might stretch your buying power further than a conventional loan. A VA loan with zero down might open up an entirely different price range. Down payment assistance could free up cash for reserves.
We have been doing this for over 20 years. We know the difference between what you can borrow and what you should borrow. And we will be honest with you about both.
Try our affordability calculator for a quick estimate. Then get pre-approved to find out your real number. Use our payment calculator to see how different home prices, down payments, and rates change your monthly payment.
Frequently Asked Questions
How much income do I need to buy a $400,000 house?
To afford a $400,000 house with 5% down at a 6.2% interest rate, you would need a household income of approximately $115,000-$125,000 per year, assuming minimal other debt. This keeps your housing costs at or below 28% of your gross monthly income. Higher existing debt, higher property tax areas, or lower credit scores would require more income.
What is the 28/36 rule for mortgages?
The 28/36 rule states that your monthly housing costs should not exceed 28% of your gross monthly income (front-end ratio), and your total monthly debt payments should not exceed 36% of your gross monthly income (back-end ratio). Most lenders use these ratios as guidelines, though some loan programs allow higher ratios.
Can I buy a house with a $50,000 salary?
Yes, you can buy a house on a $50,000 salary. Using the 28% rule, your maximum monthly housing payment would be about $1,167. At current rates, this could support a home in the $160,000-$180,000 range with 5% down. Programs like FHA loans and down payment assistance can help make homeownership more accessible at this income level.
Does my spouse's income count for a mortgage?
Yes, if both spouses are on the loan application, both incomes are counted toward qualification. However, both credit scores and both debt loads are also considered. In some cases, it may be better to apply with only one spouse if the other has significant debt or a low credit score. A loan officer at CMS Mortgage can help you determine the best strategy.
How much should I save before buying a house?
Plan to save your down payment (3-20% of the purchase price), closing costs (2-5% of the loan amount), and at least 2-3 months of mortgage payments as reserves. On a $350,000 home with 5% down, that is roughly $17,500 (down payment) + $7,000-$17,500 (closing costs) + $5,000-$7,000 (reserves) = $29,500-$42,000 total.
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This content is for educational purposes and does not constitute financial advice. Affordability depends on individual financial circumstances, location, and loan program. Consult with a licensed mortgage professional before making decisions. Connect with CMS Mortgage to discuss your situation.