How it's calculated
Lenders judge how much you can borrow mainly by your debt-to-income ratio (DTI): all your monthly debt payments, including the new housing payment, divided by your gross monthly income.CFPB Federal ability-to-repay rules require lenders to consider either your DTI or your residual income before making a Qualified Mortgage, and different loan programs set different limits.CFPB
The calculator works backward from those limits. It finds the largest monthly housing payment your income allows, then the highest home price whose payment (principal, interest, property tax, insurance, HOA and mortgage insurance) fits inside it.
It uses the limits the two biggest program rulebooks publish:
- Conventional (Fannie Mae). For manually underwritten loans, the maximum total DTI is 36% of stable monthly income, and it can go up to 45% if you meet credit score and reserve requirements. Loans approved through Fannie Mae's Desktop Underwriter can go up to 50%. Fannie Mae sets no separate housing-only ratio.Fannie Mae The calculator shows 36% as conservative and 45% as stretch.
- FHA (HUD). Manual underwriting allows a 31% housing ratio and 43% total ratio with no compensating factors, 37/47 with one, and 40/50 with two (such as cash reserves and residual income), for credit scores of 580 or more.HUD FHA also requires at least 3.5% down, which caps the price at your down payment ÷ 3.5%.
The formula
- Gross monthly income = annual income ÷ 12.
- Housing budget = the lower of (housing ratio × monthly income) and (total ratio × monthly income − other monthly debts).
- Payment at a price = principal and interest on (price − down payment) + price × property-tax rate ÷ 12 + insurance ÷ 12 + HOA + mortgage insurance. For FHA the loan includes the financed 1.75% upfront premium and the first-year annual premium. For conventional loans with less than 20% down, PMI uses the rate you enter.
- Maximum price = the highest price whose payment is within the housing budget, found by narrowing the range until it is exact to the dollar.
Worked example
On a $100,000 salary with $500 a month of other debts and $40,000 saved for a down payment, at 6.5% for 30 years with a 1.1% property tax rate and $1,800 of insurance, a conventional loan at 36% DTI supports about $359,638. At the 45% stretch limit it is $463,267.
| Line | Conservative | Stretch |
|---|---|---|
| Home price | $359,638 | $463,267 |
| Loan amount | $319,638 | $423,267 |
| Principal & interest | $2,020 | $2,675 |
| Property tax | $330 | $425 |
| Homeowners insurance | $150 | $150 |
| PMI | $0 | $0 |
| HOA dues | $0 | $0 |
| Monthly housing payment | $2,500 | $3,250 |
With an FHA loan and the same numbers, the 31% housing ratio limits the price to $348,461, and the 40/50 stretch ratios allow $444,988.
Assumptions and limitations
- An estimate, not a preapproval. Lenders also weigh credit score, savings, employment and the property itself, and automated approvals can allow ratios above the manual limits shown.
- The 28% housing rule of thumb is not used. It is widely quoted, but we could not find it in a current agency or Fannie Mae rule, so the conventional estimate uses Fannie Mae's published total-DTI limits only.
- PMI is optional input. If your down payment is under 20% on a conventional loan, PMI usually applies; enter a lender's quoted rate to include it.
- Closing costs and cash reserves are not subtracted from your down payment.
- Loan limits. The calculator warns when a loan passes the 2026 conforming limit or FHA floor, but it does not look up your county's limit.FHFA
- The maximum isn't a target. A payment at the limit leaves little room for savings, repairs or rising taxes. The mortgage calculator shows the full payment for a specific price.