Money
Home Affordability Calculator
How much house your income allows — worked backwards from the 28/36 rule that conventional lenders use to qualify borrowers.
The link carries your figures, so it reopens on exactly these numbers.
The two ceilings
Conventional lending applies two separate tests. The lower one binds.
28% housing ratio (front-end)
$340,717
Housing costs alone must stay under 28% of gross monthly income.
36% total debt ratio (back-end)
$362,495
Housing plus all other debts must stay under 36% of gross monthly income.
The formula
The denominator folds property tax into the price solve, so the answer is exact rather than iterative. The payment factor C converts a lump-sum loan into a monthly payment; dividing by (C + tax rate/12) accounts for the fact that a higher price means both a higher loan and a higher tax bill.
Worked example
$100,000 gross income, $500 monthly debts, $60,000 down payment, 7% rate over 30 years, 1.2% property tax, $1,500 insurance:
- gross monthly income = $100,000 ÷ 12 = $8,333.33
- front-end budget = $8,333.33 × 0.28 = $2,333.33
- back-end budget = $8,333.33 × 0.36 − $500 = $2,500.00
- front-end max price = $340,717
- back-end max price = $362,495
- binding constraint: front-end → max price = $340,717
- loan = $340,717 − $60,000 = $280,717
- monthly payment = $2,333 (P&I $1,868 + tax $341 + insurance $125)
Where this goes wrong
Confusing what a lender will approve with what you can afford
The 28/36 rule is a qualification test, not a budget. It uses gross income, not take-home pay. A household earning $100,000 might clear $6,000 a month after taxes, retirement and health insurance. Spending $2,333 of that on housing (28% of gross) leaves $3,667 for everything else — which may or may not be enough. The lender is checking whether the loan is safe for them, not whether the payment is comfortable for you.
Forgetting that property tax varies by a factor of five
The national median effective rate is about 1.1%, but New Jersey charges 2.2% and Hawaii charges 0.3%. A $400,000 home in New Jersey carries $733 a month in tax; the same home in Hawaii carries $100. This calculator uses the rate you enter. If you leave it at the default, the answer is only as good as the default — check your county.
Questions
- What is the 28/36 rule?
- It is a pair of ratios used by conventional lenders to decide how much housing debt a borrower can carry. The front-end ratio (28%) caps housing costs — principal, interest, taxes, insurance and HOA — at 28% of gross monthly income. The back-end ratio (36%) caps all monthly debt obligations — housing plus car payments, student loans, credit card minimums — at 36% of gross monthly income. Whichever produces the lower maximum home price is the one that binds.
- Is 28/36 a law?
- No. It is a guideline used by Fannie Mae and Freddie Mac for conforming loans. FHA loans use 31/43. VA loans have no front-end ratio and use 41% for the back-end. Individual lenders may apply different thresholds or compensating factors. This calculator uses 28/36 because it is the most common conventional standard, but your actual approval may differ.
- Why does the property tax create a circular dependency?
- Property tax is a percentage of the home price, and the home price is what we are solving for. A higher price means higher tax, which means a smaller affordable price. The calculator solves this algebraically rather than by trial-and-error, so the answer is exact.
- Does this include mortgage insurance?
- No. With less than 20% down a lender will require mortgage insurance, which reduces the price you can afford. This calculator gives you the ceiling before PMI; use the mortgage calculator to see the full payment including insurance.
- Why does paying off a car loan raise the home price so much?
- Because the back-end ratio counts every recurring debt payment. A $400 car payment consumes $400 of your 36% budget every month. Eliminating it frees that entire amount for housing, which — once leveraged over 30 years of amortisation — translates to tens of thousands of dollars in additional borrowing capacity.
- Is gross income the right number to use?
- Yes, for this purpose. Lenders qualify borrowers on gross (pre-tax) income, not take-home pay. This is a qualification calculation, not a budgeting tool. What you can afford in practice may be less than what a lender will approve.