How much can I actually borrow for a house?
Most lenders cap housing costs near 28 percent of gross monthly income and total debt payments near 36 percent, with 43 percent a common hard ceiling. Those ratios, not the sale price, decide what you can borrow.
Updated 2026-08-24
The two ratios a lender actually uses
Affordability is not a judgement about your lifestyle. It is two fractions, and knowing them tells you the answer before you speak to anybody.
The first is the housing ratio, sometimes called the front-end ratio: your total monthly housing cost divided by your gross monthly income. The conventional guideline puts it at 28 percent. On an income of 6,000 a month that is 1,680 for everything the house costs each month — not 1,680 of mortgage plus taxes on top.
The second is the total debt ratio, or back-end ratio: every monthly debt payment, housing included, over the same gross income. The traditional guideline is 36 percent, and 43 percent is where a great many lenders stop, because that is the threshold written into the qualified-mortgage rules in the United States after 2008. Some programmes stretch past it with compensating factors — a large deposit, substantial reserves, a long credit history — but you should treat 43 as the edge of the map rather than a target.
The back-end ratio is the one that surprises people, because it counts obligations that feel unrelated to a house. Car finance, student loan payments, credit card minimums, child support and any personal loan all land in the numerator. A 400 car payment does not reduce your borrowing power by 400. It reduces it by roughly what 400 a month would have serviced in mortgage — which at typical rates over thirty years is somewhere in the region of 60,000 to 70,000 of principal. Clearing a car loan before applying can move the number you qualify for more than a year of saving does.
Both ratios use gross income, before tax. That is a genuine trap rather than a technicality. If your effective tax and payroll rate is 25 percent, a payment at 28 percent of gross is roughly 37 percent of what actually reaches your account, and the 36 percent total-debt ceiling is closer to 48 percent of take-home. The ratios are underwriting rules describing the risk a lender will accept. They are not advice about what leaves you comfortable.
The monthly payment is not the monthly cost
A mortgage calculator that returns principal and interest alone is answering a narrower question than the one you asked.
The industry shorthand is PITI: principal, interest, taxes and insurance. The first two are what the loan amortisation produces. The second two are not optional and are usually collected with the payment into an escrow account, which is why the figure a lender quotes is larger than the one you calculated at home.
Property tax varies more than any other line. Rates in the United States run from well under half a percent of assessed value annually to well over two percent depending on the state and the local district, so identical houses at identical prices can differ by more than a thousand a month in tax. Homeowners insurance adds a few hundred a month in most places and considerably more where wind, flood or wildfire risk is priced in. If the property sits in an association, its dues count toward the housing ratio too, and an association can raise them without asking you.
Then there is the cost that no lender counts and every owner pays. Maintenance and replacement reserve is commonly estimated at one percent of the property value each year, which on a 400,000 house is a little over 300 a month averaged out. It does not arrive smoothly. It arrives as a roof, a furnace or a water heater, and a household with no reserve meets those on a credit card at a rate that makes the mortgage look cheap.
Closing costs sit outside the monthly picture but decide whether you can transact at all. Two to five percent of the purchase price is the usual range, covering origination, appraisal, title work, recording and prepaid escrow. Money spent there is money not available as a deposit, and it is the reason a household with exactly a 20 percent deposit saved often completes with less.
What the deposit changes, beyond the obvious
A larger deposit shrinks the loan, which is the obvious effect. It also changes the price of the loan, which is the one worth planning around.
The mechanism is loan-to-value, the borrowed amount over the property value. Below 80 percent LTV — that is, with a deposit of 20 percent or more — conventional loans require no mortgage insurance. Above it, private mortgage insurance typically costs somewhere between 0.3 and 1.5 percent of the loan each year, priced on your credit and the exact LTV, and it protects the lender rather than you. On a 320,000 loan the middle of that range is a few hundred a month for nothing you can ever claim against.
Lenders also tier interest rates by LTV and credit score in steps rather than smoothly. Crossing from 80.5 percent to 79.9 percent LTV can move the rate by a quarter point and remove the insurance in the same stroke, which is why the last few thousand of a deposit are often worth far more than the first few thousand. The same is true of credit-score bands: several points can be worth more than several thousand in deposit if they carry you over a threshold.
The counterweight is that a deposit is money you no longer hold. Emptying every account into the purchase leaves a household with a house and no reserve, which is the condition under which one broken boiler becomes a debt spiral. Three to six months of expenses kept liquid is worth more than the marginal rate improvement from the last portion of a deposit.
Where affordability calculators flatter you
Every affordability tool, including ours, answers a mechanical question. Reading its output as a recommendation is the mistake.
It uses gross income, as lenders do. It usually assumes current interest rates persist, which is fine for a fixed-rate loan and actively misleading for a variable one. It rarely knows your property tax district. It never knows that you plan to change jobs, have a child, or that one of two incomes is contract work. And it computes a maximum, which is the top of a range rather than a point on it.
A more useful exercise is to run the calculation backwards. Decide what monthly figure you would be content paying if your income dropped by a fifth, add the tax, insurance and reserve estimates, and work out what loan that services. That number is smaller than the maximum, and it is the one that survives a bad year.
It is also worth testing the rate rather than the price. A one-point move in interest rates changes what a given payment can borrow by roughly a tenth over a thirty-year term. If your plan only works at the rate quoted this week, it is not a plan, and running the same payment against a rate one or two points higher tells you how much slack you actually have.