There are two answers to this question and they are almost never the same number. One is what a lender will approve. The other is what you should actually spend. Understanding the gap between them is the single most useful thing a first-time buyer can do.
What the lender is calculating
Every mortgage approval runs through a debt-to-income ratio, and there are two of them.
The front-end ratio is your total housing payment divided by gross monthly income. Housing payment means principal, interest, property taxes, homeowners insurance, mortgage insurance, and HOA dues. All of it, not just the loan.
The back-end ratio adds every other debt payment that shows on your credit report: car loans, student loans, credit card minimums, personal loans, and child support or alimony. Divide that total by gross monthly income and you have the number underwriting cares about most.
The limits by program
- Conventional: generally 45% back-end, stretching to 49.9% with strong compensating factors like large reserves or a high credit score
- FHA: commonly 46.9% front and 56.9% back with an automated approval
- VA: no hard cap, because VA uses a residual income test instead
- USDA: typically 29% front and 41% back, with flexibility above that on a strong file
You will notice the old “28/36 rule” sits well below all of these. That rule is not a lending guideline. It is a budgeting guideline, and it is a good one.
Why the approval number is too high
Gross income is pre-tax. Your mortgage is paid post-tax. On a $110,000 household income that gap is roughly $2,000 a month before you have bought groceries, and none of it appears in a debt-to-income calculation.
Underwriting also cannot see: childcare, retirement contributions, health insurance premiums taken from your paycheck, the maintenance a house needs, or the fact that your car has 140,000 miles on it. A 49% back-end ratio can be technically approvable and still leave you unable to fund a 401(k).
Getting to your number instead
Work backward from take-home pay rather than forward from gross. A workable approach:
- Start with actual monthly take-home, after taxes and payroll deductions
- Cap total housing at 30% of that number, not 43% of gross
- Add 1% of the purchase price per year for maintenance, divided by twelve
- Subtract what you are currently saving each month and want to keep saving
- The remainder is your real ceiling. Work back from it to a purchase price
On a $110,000 household income, a lender might approve a $520,000 purchase. The number that lets you keep funding retirement and absorb a $6,000 HVAC replacement is usually closer to $390,000.
What actually moves the number
If the answer comes back lower than you want, four things move it, in rough order of impact:
- Paying off a car loan. A $650 payment removed from the back end frees roughly $110,000 of purchase price at current rates. Nothing else moves it that fast.
- Credit score. Crossing 700, 720, or 760 changes both rate and mortgage insurance pricing. Thirty points can be worth more than $20,000 of purchase price.
- Down payment. Reaching 20% removes PMI entirely, which lowers the payment that the ratio is calculated against.
- Loan program. The same borrower can qualify for meaningfully different amounts under FHA versus conventional, because the ratio caps differ.
Run it yourself first
Our mortgage calculator includes taxes, insurance, PMI, and HOA, so the number it produces is the number a lender would use as your housing payment. Start there, then get pre-qualified and we will run the debt side with you.