HOME BUYING
From Listings to Living
You earn $100,000 a year, make a $500 car payment and have about $45,000 saved. One website says you can buy a $420,000 home. A friend who bought last year tells you to stay under $300,000. Both can be right, because they are answering different questions: what a lender might approve, and what you can carry every month without strain.
So how much house can I afford? Start with gross monthly income and two ratios. The 28/36 rule, a common rule of thumb, keeps the full housing payment at or below 28 percent of gross income and all monthly debts, housing included, at or below 36 percent. Lenders can go further: Fannie Mae accepts a total debt-to-income ratio of up to 50 percent on loans run through its automated underwriting system. Then turn the payment into a price at the current rate, and confirm you have cash for the down payment, closing costs and a cushion.
At 7.40 percent, the 30-year fixed average in Freddie Mac's Primary Mortgage Market Survey for the week of October 15, 2026, the buyer above lands near $300,000 under 28/36 with 10 percent down, and near $418,000 if a lender approves a 45 percent total ratio. The assumptions behind both numbers are spelled out below so you can swap in your own.
Leevli Editorial Team
Your debt-to-income ratio, or DTI, is all your monthly debt payments divided by your gross monthly income, in the CFPB's plain definition. Lenders and planners look at two versions:
The math for the opening example: $100,000 a year is $8,333 a month. Twenty-eight percent of that is $2,333. Thirty-six percent is $3,000, and after the $500 car payment, $2,500 is left for housing. The lower figure wins, so the housing budget is $2,333. With more debt, the back-end ratio becomes the limit instead.
The CFPB itself does not endorse 28/36 or any single number; it says different loan products and lenders have different DTI limits. Treat 28/36 as a comfort test, not an approval rule.
The real ceilings come from the agency or investor behind the loan, and lenders may add stricter limits of their own, called overlays.
| Loan type | Published limit | When it can go higher |
|---|---|---|
| Conventional, Fannie Mae, manually underwritten | 36 percent total DTI | Up to 45 percent if the borrower meets the credit score and reserve requirements in Fannie Mae's Eligibility Matrix |
| Conventional, Fannie Mae Desktop Underwriter (DU) | Up to 50 percent total DTI | The automated findings decide; 50 percent is the cap |
| FHA, manually underwritten | 31 percent housing, 43 percent total | 37/47 with one compensating factor, 40/50 with two, 40/40 with no discretionary debt (credit score 580 or higher) |
| VA | 41 percent total DTI as the standard | Above 41 percent with a documented justification, which is not required when residual income beats the guideline by at least 20 percent |
The conventional limits come from Fannie Mae Selling Guide B3-6-02. The FHA ratios are the manual underwriting matrix in HUD Handbook 4000.1; most FHA files are scored first by FHA's TOTAL Mortgage Scorecard, and the matrix governs the ones a human underwriter decides. Borrowers with scores from 500 to 579, or no score, are held to 31/43. Our guide to how to qualify for an FHA mortgage lists the compensating factors in detail, and the explainer on what an FHA loan is covers its mortgage insurance. For how these programs compare overall, see our guide to types of mortgage loans.
VA underwriting adds a measure most buyers never hear about. Under 38 CFR 36.4340, the lender checks whether the money left each month, after estimated shelter expenses and other obligations, is adequate for living expenses. The regulation sets dollar guidelines by family size, region and loan amount. For a family of four with a loan of $80,000 or more, the guideline is $1,003 a month in the South and Midwest, $1,025 in the Northeast and $1,117 in the West. Residual income is a useful self-check even on a conventional loan, because DTI ignores groceries, childcare and commuting.
The back-end ratio only works if you count debts the way an underwriter does. Fannie Mae Selling Guide B3-6-05 sets these rules for conventional loans:
FHA is stricter on one point: when a student loan shows a $0 payment, HUD's handbook requires lenders to use 0.5 percent of the outstanding balance, so a deferred $40,000 loan adds $200 a month to the ratio. Utilities, phone bills and groceries are not debts in the ratio, which is why a lender's maximum can overstate what feels comfortable.
The housing payment in both ratios is more than the loan payment. HUD's handbook lists what goes into it for FHA: principal and interest, real estate taxes, hazard insurance, flood insurance where required, mortgage insurance, HOA or condo fees, ground rent, special assessments and any other escrow payments. Conventional underwriting uses the same idea, often written as PITIA, with the A for association dues.
Dues move the answer more than most buyers expect. Say the $100,000 earner is looking at a condo in Brickell with $350 in monthly dues, an illustrative figure rather than a quote for any building. With the same $2,333 budget and the assumptions in the next section, the price ceiling drops from about $300,000 to about $255,000. Every dollar of dues is a dollar that cannot go to the loan.
The table below is illustrative. Assumptions: a 30-year fixed loan at 7.40 percent (the PMMS average cited above), 10 percent down, property taxes of 1.0 percent of the price per year, homeowners insurance of 0.4 percent of the price per year, PMI of 0.5 percent of the loan per year, and no HOA dues. Taxes, insurance and PMI vary widely by location, home and credit, so treat these as placeholders for your own quotes.
| Annual salary | Gross monthly income | Other monthly debts | Housing budget under 28/36 | Price under 28/36 | Price at a 45 percent total DTI |
|---|---|---|---|---|---|
| $60,000 | $5,000 | $300 | $1,400 (housing ratio binds) | About $180,000 | About $251,000 |
| $100,000 | $8,333 | $500 | $2,333 (housing ratio binds) | About $300,000 | About $418,000 |
| $150,000 | $12,500 | $1,200 | $3,300 (total ratio binds) | About $425,000 | About $569,000 |
How each price was found: the housing budget equals principal and interest plus taxes, insurance and PMI, all of which grow with the price, so the price is solved so that the four pieces add up to the budget. For the $100,000 row, a price of about $300,000 means a loan of about $270,000, principal and interest of about $1,870, taxes of $250, insurance of $100 and PMI of $113, for $2,333 a month. The 45 percent column uses 45 percent of gross income minus the other debts as the housing budget, with no separate housing cap.
Under these assumptions, about $300,000 if you hold to 28/36, about $418,000 at a 45 percent total ratio, and about $472,000 at the 50 percent DU ceiling. Say you are buying a two-bedroom in Charlotte's South End on that salary: the gap between $300,000 and $472,000 is the gap between a payment that leaves room for savings and one where debt payments take half your gross pay before taxes, food or childcare. Any mortgage affordability calculator runs this same arithmetic; the difference between tools is which assumptions they hide.
Holding the $2,333 budget and every other assumption fixed, here is the price the $100,000 earner can reach at three rates:
| 30-year fixed rate (illustrative) | Loan amount | Price ceiling |
|---|---|---|
| 6.40 percent | About $293,000 | About $325,000 |
| 7.40 percent | About $270,000 | About $300,000 |
| 8.40 percent | About $250,000 | About $278,000 |
One percentage point moves the ceiling by roughly $22,000 to $25,000 at this income. Buying down the rate with discount points is one way to stretch, at an upfront cost covered in our guide to points on a mortgage. Rates also change weekly, so recheck the math the week you make an offer.
Affordability has a cash side. For the $300,000 example with 10 percent down:
Our buyer from the opening, with $45,000 saved, covers $30,000 down plus closing costs at the low end with something left. If the cash side is the real limit for you, our guide on how to save up for a house works through targets and timelines.
An approval measures risk to the lender, not your life. A house has repairs that a condo association might otherwise handle, and a condo has dues and the chance of a special assessment; our comparison of condo vs house costs sets those side by side. Say you are comparing a townhouse and a detached house at the same price in Austin's Mueller: the ratios treat them alike, but the repair budgets will not be.
Before you shop, get a lender's number. A mortgage pre-approval runs your actual credit, income and debts through the lender's system, and the result is often different from any rule of thumb. Then set your own ceiling somewhere between 28/36 and the approval, based on savings goals and job stability. A lender or HUD-approved housing counselor can check your numbers; this page is general information, not financial advice.
When you have a ceiling, compare real homes on Leevli listings. If you are touring homes in Lincoln Park in Chicago, read the neighborhood page and ask people who live there what the dues, tax bills and insurance quotes actually came to.
Your ratios depend on taxes, dues and insurance that only owners in the building or street have actually paid.
Listings show the property, but they rarely explain the lived reality around it. On Leevli, a mover can explore the city, review neighborhood and building information, and ask a verified resident the specific questions that remain unanswered. That human layer helps readers know what to investigate before signing a lease, making an offer, or choosing between two addresses.
Multiply your annual salary by 0.28 and divide by 12 to get a conservative monthly housing budget, then subtract estimated taxes, insurance, mortgage insurance and dues to find what is left for principal and interest. Convert that payment into a loan amount at the current rate and add your down payment. At 7.40 percent with 10 percent down, our illustration puts a $60,000 salary near a $180,000 price.
It is a planning guideline: spend no more than 28 percent of gross monthly income on the total housing payment, and no more than 36 percent on all debts combined, including housing. It is not a legal or agency limit. Fannie Mae, FHA and VA all publish their own ratio limits, and many approvals go above 36 percent, which is exactly why a stricter personal rule can be useful.
It depends on the loan. Fannie Mae caps manually underwritten loans at 36 percent, or 45 percent with qualifying credit scores and reserves, and allows up to 50 percent through Desktop Underwriter. FHA's manual benchmark is 31 percent for housing and 43 percent total, with stretches for compensating factors. VA uses 41 percent as a standard plus a residual income test.
Rarely. A calculator uses default assumptions for taxes, insurance, mortgage insurance and rate, and usually ignores how underwriters count student loans, leases and credit card balances. A lender's pre-approval uses your credit report, documented income and actual quotes. Use a calculator to set a range, then let the lender's numbers replace the defaults before you make an offer.
Yes. For conventional loans, Fannie Mae has lenders use 1 percent of the balance or a fully amortizing payment when the credit report shows no payment; a documented $0 income-driven payment can be used. FHA uses 0.5 percent of the balance when the report shows $0. A deferred $40,000 loan can therefore add $200 to $400 a month to your debts.
With no car, card or student loan payments, the 28 percent housing ratio is the only limit under 28/36, so a $100,000 earner still lands near $300,000 in our illustration at 7.40 percent with 10 percent down. A lender approving a 45 percent total ratio could reach about $482,000. Having no debts raises what a lender allows far more than what the comfort rule allows.
Start six to twelve months before you plan to shop, so you have time to pay down revolving balances, avoid new debt and build cash. Get a pre-approval when you are ready to tour seriously, and rerun the math the week you make an offer, because rates, insurance quotes and your own debts may have changed since you first estimated.
Yes. Even though the association bills them separately from the mortgage, lenders add dues to the housing payment, and HUD lists HOA and condo fees and special assessments in the FHA payment. In our example, $350 in monthly dues cut a $100,000 earner's price ceiling from about $300,000 to about $255,000 at the same budget.
Budgeting from principal and interest alone. Taxes, insurance, mortgage insurance and dues can add several hundred dollars a month, and lenders count every one of them. The second most common mistake is treating the approval amount as a target. An approval at 45 or 50 percent DTI leaves little room for savings, repairs or a change in income.
Plan for closing costs, which Fannie Mae says usually run 2 to 5 percent of the mortgage, plus reserves left in the bank after closing. On a $270,000 loan, closing costs alone could be about $5,400 to $13,500. Seller credits can offset part of that within loan program limits, but they cannot fund your required down payment.
This article is informational and does not constitute legal, financial, tax or insurance advice.
