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The Two Qualifying Ratios

Housing costs capped at 28 percent of gross income. The front end ratio. It covers the whole housing payment rather than the loan alone, which is the part that surprises people.

All debt capped at 36 percent. The back end ratio. Housing plus car payments, student loans and credit card minimums. Utilities, groceries and insurance premiums other than the home policy do not count.

Both apply, and the tighter one decides. Somebody with no other debt is limited by the first. Somebody with a large car payment is limited by the second, and their answer changes by paying that off rather than by earning more.

Gross, not net. Qualifying uses income before tax, which is why the numbers can look generous against what actually lands in your account.

How to Use This Calculator

Enter gross income, not take home pay. That is what the ratios are defined against, and using net pay will understate the result by a wide margin.

Include every recurring debt payment. Minimums count, not balances. A credit card with a large balance and a small minimum affects this less than a car loan with a large payment.

Set the property tax rate for your area. It varies by more than any other input on this page, and it changes the answer substantially because it sits inside the payment limit.

Read the breakdown, not just the headline. Seeing how much of the payment is tax and insurance rather than loan is usually more useful than the maximum price itself.

What Counts as the Housing Payment

Principal and interest are only part of it. The industry shorthand is PITI: principal, interest, taxes and insurance. HOA dues and mortgage insurance are added on top where they apply.

All of it sits inside the 28 percent. Which means a high tax area buys you less house at the same income, not the same house with a bigger bill.

Many calculators leave this out. They divide the income cap by principal and interest alone and produce a maximum price that no lender would approve. The difference is frequently tens of thousands.

HOA dues count in full. A property with high service charges qualifies for a smaller loan than an identical one without them.

Why the Maths Is Circular

Property tax depends on the price you are solving for. You cannot subtract it from the payment budget until you know it, and you cannot know it until you know the price.

Mortgage insurance depends on the loan. Which depends on the price, which depends on how much room is left after the insurance. The same loop again.

It is settled by iterating. Estimate, compute the costs, recompute the price, repeat. It converges in two or three passes, and the payment breakdown above adds up exactly to the limit, which is how you can tell it converged.

The alternative is being wrong quietly. Ignoring the dependency produces a number that looks reasonable and overstates the answer.

Which Rule Is Limiting You

This determines what to do next. If the housing ratio binds, more income or a bigger down payment moves the answer. If the debt ratio binds, clearing a monthly payment moves it far more.

Paying off debt has leverage. Removing a payment frees the same amount for housing, and that amount supports a multiple of itself in borrowing. It is usually the fastest lever available.

Balance is not the point, the payment is. A large student loan on an income driven plan with a small payment restricts you less than a smaller car loan with a large one.

What the Interest Rate Does

It changes purchasing power more than price changes do. A one point move in the rate alters the loan a given payment supports by roughly a tenth, which for most buyers is larger than any realistic negotiation on price.

The payment is fixed, the house is not. Your qualifying payment is set by your income. What that payment buys depends entirely on the rate.

A longer term raises the ceiling and the cost. Thirty years qualifies you for more than fifteen at the same payment, and you pay a great deal more interest for it.

Costs the Ratios Ignore

Closing costs are separate from the down payment. Commonly two to five percent of the price, and they are due in cash at completion. Spending your entire deposit on the deposit leaves you short.

Maintenance is not optional. A common planning figure is one percent of the value a year. It does not arrive evenly, and the year the roof goes it is not one percent.

Moving in costs money. Furniture, appliances and the repairs you find in the first month are real and routinely unbudgeted.

None of this appears in a qualifying ratio. Which is why the maximum a lender approves and the amount you should spend are different numbers.

Qualifying Against Affording

A lender is assessing default risk, not your life. The ratios predict whether you will keep paying. They say nothing about childcare, travel, or wanting to change career.

Buying at your maximum removes your margin. It is the qualifying ceiling, so by definition there is nothing above it if circumstances change.

Many buyers deliberately go lower. Treating the maximum as a limit rather than a target is a common and sensible approach, and nothing about the calculation suggests otherwise.

Run it against net pay as a sanity check. If the payment is an uncomfortable share of what actually reaches your account, that is worth more than any ratio.

Common Mistakes to Avoid

Using net income. The ratios are defined on gross, and using take home pay understates the result substantially.

Forgetting tax and insurance. They sit inside the limit, and leaving them out is the single most common reason an online estimate does not survive contact with a lender.

Spending the entire down payment. Closing costs are extra, and arriving with nothing left is a bad position on the day.

Treating the maximum as the target. It is the point at which a lender stops saying yes, which is not the same as the point at which spending more stops being wise.

Frequently Asked Questions