How the budget is worked out
First, your yearly income is split into months. The housing limit is 28% of that. The debt limit is 36% minus your existing debt payments. The smaller of the two is your maximum monthly housing cost.
Taxes, insurance and fees come out of that budget first. What is left can go to the loan payment, which the calculator converts into a loan amount at your interest rate and term.
A worked example
Take 85,000 income, 500 of other debt payments, 450 a month for taxes and insurance, a 40,000 down payment, 6.5% interest and 30 years. Monthly income is 7,083. The housing limit is 28%, or 1,983. The debt limit is 36% of income minus 500, or 2,050, so the housing limit applies.
After the 450 for taxes and insurance, 1,533 is left for the loan payment. That supports a loan of about 242,600, and with the 40,000 deposit a home price of about 282,600.
What moves the answer most
Interest rate, debts and down payment all have large effects. Paying off a car loan can raise your budget as much as a pay rise would. A higher rate cuts the loan you can support, because more of each payment goes to interest.
Choosing a shorter term lowers the loan you can borrow for the same payment, but costs less interest overall.
Limits of this estimate
Lenders also consider credit history, savings, employment and the property itself. This tool gives a planning figure, not a loan offer or financial advice.
Questions people ask
How much house can I afford?
A common guide is that housing should take no more than 28% of gross monthly income, and total debts no more than 36%. This calculator applies both and uses whichever is lower, then turns the budget into a loan and a home price.
What is the 28/36 rule?
The 28% limit applies to housing costs, including loan payment, property tax and insurance. The 36% limit applies to all monthly debt payments including housing. Lenders use many variations, but these figures are a widely used starting point.
Why is the home price higher than the loan?
The price includes your down payment. A loan of about 242,600 plus a 40,000 deposit supports a home near 282,600 in the example.
Should I borrow the maximum?
Not necessarily. These ratios show what a lender may allow, not what is comfortable. Leave room for repairs, savings, childcare and rate changes. Many people choose a budget below the maximum.
Do these rules apply outside the US?
The ratios are US-style. In the UK and parts of Europe, lenders often use income multiples, such as around four to four and a half times income, and stress-test affordability. Use this as a guide and check local rules.