How Much House Can You Really Afford?
The honest answer to “how much house can I afford” is not a single number — it is a comfortable monthly payment, backed by stable income and a cushion of savings. Price follows from there. Let us walk through exactly how a lender decides, so you can decide for yourself first.
The two ratios that run the show
Underwriting turns affordability into two numbers, both called debt-to-income (DTI). The front-end ratio is your housing payment divided by your gross monthly income. The back-end ratio is all your monthly debts — the new housing payment plus car loans, student loans, minimum credit-card payments and the like — divided by that same income.
The classic rule of thumb is 28/36: keep housing at or under 28% of gross income and total debt at or under 36%. That guideline is a good compass, but it is conservative. In practice, automated underwriting approves well beyond it every day.
| Program | Typical max back-end DTI |
|---|---|
| Conventional (automated) | Often up to ~50% with strong credit and reserves |
| FHA | Up to ~57% with compensating factors |
| VA | Guided by residual income, not a hard DTI cap |
| Jumbo | Usually tighter, commonly 43% or less |
The point is not to borrow to the ceiling. It is to understand that the ceiling is higher and more flexible than most borrowers assume — and that the right program can change the answer completely.
What counts as income (and what does not)
Lenders count income they can document and reasonably expect to continue. Base salary, overtime and bonus with a two-year history, documented self-employment income, Social Security, pension, child support and rental income can all qualify. A one-time windfall usually cannot.
If you are self-employed and your tax returns understate your real cash flow, do not assume you are stuck. Bank-statement programs can qualify you on 12 to 24 months of deposits instead of your returns. This is one of the most common places a “no” from the wrong lender becomes a “yes” at Lexington.
The reserves nobody mentions
After your down payment and closing costs, lenders want to see reserves — months of housing payments still in the bank. Two to six months is common depending on the program and the property. Reserves are not just a hurdle; they are the difference between a mortgage that feels heavy and one that feels comfortable the first time the water heater fails.
A simple way to set your own number
- Write down your reliable gross monthly income.
- Multiply it by 0.36 to get a conservative total-debt target, or by 0.43–0.50 to see the realistic ceiling.
- Subtract your existing monthly debts. What is left is roughly what a housing payment can be.
- Remember that the housing payment includes property taxes, homeowners insurance and, on some loans, mortgage insurance — not just principal and interest.