What is the 28/36 rule in mortgage lending?

The 28/36 rule is a lending guideline stating that no more than 28% of your gross monthly income should go toward housing expenses (front-end ratio) and no more than 36% should go toward total debt payments including housing (back-end ratio). This calculator uses the 36% backend ratio for a conservative maximum. Some conventional loans allow up to 43-50% DTI with strong compensating factors like a high credit score or large down payment.

How much do I need for a down payment?

Conventional loans require as little as 3% down, FHA loans require 3.5%, and VA/USDA loans may require 0% down for qualified borrowers. However, putting 20% down eliminates Private Mortgage Insurance (PMI), which costs 0.5-2% of the loan amount annually. A larger down payment also means a lower monthly payment and more equity from day one. Use [NerdWallet](https://nerdwallet.com/mortgages/down-payment) to compare down payment options.

How does my credit score affect affordability?

Your credit score directly impacts the interest rate you qualify for. A 760+ credit score might get you a rate 1-2% lower than a 620 score. On a $300K loan, that difference can mean $200-400/month in extra payments and tens of thousands in extra interest over the life of the loan. Check your credit score and correct errors before applying for a mortgage.

What costs are included in my monthly payment?

Your total monthly payment (PITI) includes: Principal (loan repayment), Interest (cost of borrowing), Taxes (property taxes), and Insurance (homeowners insurance). Many lenders also require PMI if you put down less than 20%. This calculator accounts for principal, interest, taxes, and insurance. HOA fees are an additional cost not included here.

How do interest rates affect what I can afford?

Interest rates have an enormous impact on affordability. A 1% rate increase reduces purchasing power by approximately 10-12%. For example, a $2,000 monthly payment buys a $445K home at 5% but only a $373K home at 7%. This is why rate shopping and locking in favorable rates is critical. Check current rates daily on [Bankrate](https://bankrate.com/mortgages/).

Should I get pre-approved before house hunting?

Absolutely. Pre-approval gives you a firm price range, shows sellers you're a serious buyer, and speeds up closing once you make an offer. It involves a credit check and income verification. Pre-qualification is less formal (self-reported info) and carries less weight. Most real estate agents recommend pre-approval before starting your home search in competitive markets.

What is debt-to-income ratio and why does it matter?

Debt-to-Income (DTI) ratio compares your monthly debt payments to your gross monthly income. Lenders use it to assess your ability to manage monthly payments and repay borrowed money. A lower DTI (under 36%) signals financial health and qualifies you for better rates. A higher DTI (above 43%) may disqualify you from conventional mortgages. Reducing existing debt before applying for a mortgage directly improves your DTI.

What other costs should I budget for as a homeowner?

Beyond your mortgage payment, budget 1-2% of the home's value annually for maintenance and repairs, $300-1,000/year for homeowners insurance, property taxes (0.3-2.5% of value), HOA fees ($100-500+/month if applicable), utilities, and closing costs (2-5% of purchase price). The CFPB recommends having 3-6 months of housing expenses in emergency savings before buying a home.

Mortgage Affordability Calculator

Determine how much house you can afford based on your income, debt, down payment, and current interest rates using the 28/36 rule.