How Much House Can I Afford? Income, Debt Ratio, and Down Payment Calculator

“How much house can I afford?” is not a guess, a lender quote, or an emotional decision. In the USA, the correct answer comes from three concrete inputs: income, debt-to-income (DTI) ratio, and down payment size.

This guide shows you exactly how to calculate home affordability, explains the math lenders use, and helps you decide what you can afford comfortably, not just what you’re approved for.

Key Takeaways (Quick Scan)

• Income sets the ceiling, not the target
• Debt ratio determines loan approval risk
• Down payment affects payment, interest, and flexibility
• The “max approval” is often higher than smart affordability

Step 1: Start With Gross Household Income

Lenders use gross income (before taxes), not take-home pay.

What counts as income

• Salary or hourly wages
• Consistent bonuses or commissions
• Verified self-employment income

Cause → Effect → Outcome
Higher income → higher allowable payment → higher price range

Step 2: Understand Debt-to-Income (DTI) Ratio

DTI is the most important affordability limiter.

DTI formula

DTI = (Monthly debt payments ÷ Monthly gross income) × 100

Typical lender thresholds (USA)

What counts as debt

• Car loans
• Student loans
• Credit cards (minimums)
• Personal loans

Key point:
Living expenses (food, utilities) do not count—but they still affect comfort.

Step 3: Determine Your Maximum Monthly Housing Payment

Most lenders cap housing costs (mortgage + taxes + insurance) at 28–31% of gross income.

Example

• Monthly gross income: $8,333
• 30% housing ratio: ~$2,500 max housing payment

Cause → Effect → Outcome
Lower housing ratio → financial flexibility → reduced stress

Step 4: Factor in Existing Monthly Debt

Your housing payment plus other debts must stay within DTI limits.

Example scenario

• Monthly income: $8,333
• Existing debt: $800
• Max DTI (43%): ~$3,583 total debt

Available for housing:
$3,583 − $800 = $2,783

Step 5: Down Payment Size Changes Everything

Down payment affects loan size, monthly payment, and approval strength.

Typical down payment ranges (USA)

Down payment example

• Home price: $400,000
• 5% down: $20,000 → larger loan
• 20% down: $80,000 → smaller loan

Cause → Effect → Outcome
Higher down payment → lower monthly cost → easier affordability

Step 6: Estimate Home Price Based on Payment

Now convert monthly payment into purchase price.

Simplified affordability estimate

*Assumes typical taxes, insurance, and rates. Actual numbers vary by location.

Step 7: Don’t Forget Taxes, Insurance, and Maintenance

Mortgage principal is not your full cost.

Common add-ons

• Property taxes
• Homeowners insurance
• HOA fees
• Maintenance (≈1% of home value/year)

Outcome:
Ignoring extras → payment shock → budget strain

Comfortable Affordability vs Maximum Approval

Two different numbers

Rule of thumb:
If the payment makes saving impossible, it’s not affordable.

Real-World Affordability Scenarios

Scenario A: Conservative Buyer

• Income: $100,000
• Debt: $500
• Down payment: 20%
• Comfortable home price: ~$350,000

Scenario B: Aggressive Buyer

• Income: $100,000
• Debt: $1,200
• Down payment: 5%
• Max home price: ~$425,000
• Higher long-term risk

Quick “How Much House Can I Afford?” Calculator (Manual)

1. Monthly gross income × 0.30
2. Subtract existing monthly debt
3. Subtract taxes + insurance
4. Convert remainder to home price

This gives a realistic affordability range, not a sales number.

Common Affordability Mistakes

• Using approval amount as budget
• Ignoring future expenses
• Putting all savings into down payment
• Forgetting maintenance costs

Conclusion

How much house you can afford is a math problem, not a guess. When you calculate affordability using income, debt-to-income ratio, and down payment size, you gain clarity and control.

The safest buyers are not those approved for the most—but those who leave room to save, invest, and live comfortably after the purchase.