How to Calculate Your Mortgage Affordability Before House Hunting

One of the biggest mistakes first-time homebuyers make is falling in love with a house before checking whether they can actually afford it. The listing price is only part of the picture — your monthly mortgage payment depends on the loan amount, interest rate, loan term, property taxes, insurance, and potentially PMI. Before you start touring homes, use the Mortgage Calculator to run the numbers and set a realistic budget.

The 28/36 Rule: A Simple Starting Point

Lenders use the 28/36 rule to determine how much you can borrow:

• 28% front-end ratio: Your monthly housing costs (mortgage principal + interest + taxes + insurance) should not exceed 28% of your gross monthly income.
• 36% back-end ratio: Your total monthly debt payments (housing + credit cards + student loans + car loans) should not exceed 36% of your gross monthly income.

Annual Income	Monthly Income	Max Housing (28%)	Max Total Debt (36%)
$50,000	$4,167	$1,167	$1,500
$75,000	$6,250	$1,750	$2,250
$100,000	$8,333	$2,333	$3,000
$150,000	$12,500	$3,500	$4,500

Key Factors That Affect Your Mortgage Payment

Factor	How It Affects Payment	Example Impact
Down payment	Larger down payment = smaller loan = lower payment	20% down on $300k = $240k loan vs 5% down = $285k loan
Interest rate	Higher rate = higher monthly payment	6% vs 7% on $300k loan = ~$200/mo difference
Loan term	15-year = higher payment, less interest. 30-year = lower payment, more interest	15yr at 6%: $2,532/mo. 30yr at 6%: $1,799/mo
Property taxes	Vary by location; 0.5% to 2.5% of home value annually	$300k home at 1.2% = $3,600/year = $300/mo
Home insurance	Required by lenders; $1,000-$3,000/year	$1,500/year = $125/mo
PMI	Required if down payment < 20%; 0.5-1.5% of loan annually	$240k loan at 1% = $200/mo

Step-by-Step: How to Calculate Your Budget

1. Calculate your gross monthly income (pre-tax salary ÷ 12)
2. Multiply by 0.28 — this is your maximum monthly housing payment
3. Add up all existing monthly debts (car loans, student loans, credit card minimums)
4. Add your max housing payment + existing debts — this should be under 36% of gross income
5. Use the Mortgage Calculator to experiment with different home prices, down payments, and interest rates to find a payment that fits your budget

Real-World Budget Examples

Scenario	Income	Down Payment	Rate	Home Price	Monthly Payment
First-time buyer	$70,000	$15,000 (5%)	6.5%	$300,000	$2,195 (incl. PMI)
Move-up buyer	$120,000	$80,000 (20%)	6.0%	$400,000	$2,398
Luxury buyer	$200,000	$150,000 (15%)	6.5%	$1,000,000	$6,472

Remember: your maximum approved loan amount may be higher than what you are comfortable paying. Just because a lender says you qualify for $400,000 does not mean you should spend that much. Use the Mortgage Calculator to find a payment that leaves room for savings, emergencies, and lifestyle — not just the maximum a banker approves.