How Much House Can I Actually Afford?

What You Qualify For vs. What You Can Afford

Lenders use two key ratios to determine how much they'll lend:

Front-end ratio (housing ratio): Your total monthly housing cost (mortgage + taxes + insurance + HOA) should not exceed 28% of your gross monthly income.

Example: $6,000/month gross income × 28% = $1,680 max housing payment

Back-end ratio (total debt ratio): All your monthly debt payments combined should not exceed 36–43% of gross income depending on loan type.

The problem: These are maximums. The bank approves you at the ceiling. Smart buyers aim for 25% or less on housing, leaving room for life.

The real question to ask yourself: "If I lost my job tomorrow, how long could I cover this mortgage?" If the answer is less than 3 months, you're buying too much house.

What Your Monthly Payment Actually Includes

Your mortgage payment is not your only housing cost. Here's the full picture:

PITI, the four components of your mortgage payment:

• Principal: the portion paying down your loan balance
• Interest: the cost of borrowing
• Taxes: property taxes collected monthly and held in escrow
• Insurance: homeowner's insurance collected monthly and held in escrow

Additional monthly costs:

• PMI (if less than 20% down): typically 0.5–1.5% of loan amount annually
• HOA fees: $0–$500+ depending on community
• Utilities: budget $200–$500/month more than renting
• Monthly maintenance reserve: 1% of home value per year ÷ 12

Real example, $300,000 home in Metro Atlanta:

• Mortgage (6.5%, 30yr, 10% down): ~$1,707/month
• Property taxes (1.2% annual): ~$300/month
• Homeowner's insurance: ~$150/month
• PMI (0.8%): ~$180/month
• HOA (mid-range): ~$100/month
• Maintenance reserve: ~$250/month
• Total true monthly cost: ~$2,687/month

Not $1,707. $2,687. That's the number to budget against.