Mortgage Affordability Explained

Mortgage affordability is a calculation of how large of a monthly housing payment you can sustain based on your income, existing debts, and down payment.

The Two Main Rules

Lenders typically use Debt-to-Income (DTI) limits to cap your loan size:

• Front-End DTI (Housing Ratio): Your total monthly housing cost (PITI) shouldn't exceed a certain percentage of your gross monthly income (often determined by specific loan programs).
• Back-End DTI (Total Debt Ratio): Your total monthly housing cost plus all other recurring debt payments (car loans, student loans, credit cards) shouldn't exceed a certain percentage of your gross income (depending on the lender and program).

Beyond the Maximum

Just because a lender approves you for a certain amount doesn't mean you should borrow that much. The lender's formula may not account for your lifestyle, retirement savings goals, or non-debt expenses like childcare or groceries. You can model a home-price estimate from selected assumptions using our Affordability Calculator.