How the price range is worked out
The calculator starts from the payment you can carry and works back to a price. The 28/36 rule, a long-standing lending guideline, keeps the whole housing payment (principal, interest, property tax, insurance, PMI and HOA dues) under 28% of gross monthly pay, and all debt payments, housing included, under 36%. The lower of the two limits sets the payment. Then it finds the highest price whose full payment fits, with your down payment, rate and state's property tax.
On $100,000 a year, $8,333 a month before tax, with $400.00 of other debts, $60,000 down and a rate of 7.4% in California, the target is about $334,370, with a payment of $2,333.32 a month. Take-home pay for that salary is $6,012.53 a month, so the payment is a large share of what actually reaches the bank.
Three levels, not one number
The conservative level, $185,686, keeps the housing payment and other debts within 25% of take-home pay. It leaves room for savings, repairs and a job change. The target follows the 28/36 rule. The stretch level, $441,671, lets all debts reach 43% of gross pay, the upper end many lenders work to. Reaching for it is possible, but it leaves little slack in a tight month.
Location matters through property tax. Texas has no state income tax, but its median property tax rate is 1.491% against California's 0.697%, so the same salary points to $308,601 there, a lower price, because more of each payment goes to tax.
Debts, rates and income
Other debts come straight off what is left for housing under the back-end limit. Adding $500.00 a month of car payments lowers the target price from $334,370 to $304,915. Paying off a small loan before you apply can therefore raise the range more than the same money added to the down payment. The rate matters just as much: at 8.4% instead of 7.4%, the same pay supports $312,252.
Income sets the ceiling. On $75,000 a year instead of $100,000, the target falls to $271,877. Two incomes on one loan count together, but so do both borrowers' debts. Lenders also want to see that the income is steady, usually two years in the same line of work, and that you have cash left after closing.
The range is an estimate for planning, not a decision on any loan. Use the target to set a search budget, then check a specific home's full payment with the mortgage calculator, using that home's property tax.
What the inputs mean
- Salary: gross yearly pay of everyone on the loan.
- Take-home pay: worked out from the salary and state, single and paid every two weeks, or entered from your own pay stub.
- Monthly debts: minimum payments on cards, car loans and student loans. Not rent, utilities or groceries.
- Down payment, rate and term: as for the mortgage calculator.
- Ratios: change them to match a lender's program.
Common mistakes
- Treating the stretch figure as the budget. A lender's maximum is not a comfortable payment.
- Spending the whole down payment. Keep cash for closing costs, moving and the first repairs.
- Leaving out property tax and insurance, which the price range here includes.
Home affordability questions
How much house can I afford on $100,000 a year?
In California, with $400.00 a month of other debts and $60,000 down at 7.4%, the 28/36 rule points to about $334,370. A cautious budget is $185,686, and a stretch $441,671. On $75,000 the target is $271,877.
Does a car payment change what I can afford?
Yes, through the back-end ratio. Adding $500.00 a month of car payments lowers the target price from $334,370 to $304,915, because the total of all debts, housing included, is capped.
Should I count my partner's income?
Only if they will be on the loan. A lender counts the income of everyone who signs, together with all of their debts. If one partner has large student loans, check the range both ways.
How much should I keep in savings after buying?
Enough for closing costs, moving and a cushion of a few months of the new payment. Lenders may ask for reserves, and a new home often needs repairs in the first year.
How much does the interest rate matter?
A lot. One percentage point more, at 8.4%, lowers the target from $334,370 to $312,252 on the same pay, because more of the same payment goes to interest.
Sources
Mortgage rates: Freddie Mac weekly averages as of . How we calculate.