Mortgage Affordability: Budget, Costs and Worked Example

To estimate a mortgage price ceiling, start with the smaller of your housing budget and the debt-adjusted budget, then subtract property costs. Convert the remaining payment into a loan and add your down payment. This guide shows each step using the same assumptions as WiseCalc's calculator.

Use the House Affordability Calculator alongside the example. For the broader household decision, read How Much House Can You Afford in the U.S.?. For income-specific planning, see How Much House Can I Afford on My Salary?.

Start with a monthly housing budget

For this calculator, the monthly housing budget covers principal and interest plus your entered property taxes, property insurance, mortgage insurance and HOA or assessments. These costs need room in the budget even when you pay them separately from the mortgage. Fannie Mae's monthly housing expense guidance also identifies additional items that can apply, such as ground rent or subordinate financing. The calculator is a simplified scenario, not that complete underwriting assessment.

For everyday affordability, compare the total with take-home pay after spending and savings. Leave room for repairs, utilities and changing expenses. The CFPB explains why what you qualify to borrow can differ from what you can afford.

What the 28/36 defaults mean

WiseCalc starts with two editable planning assumptions:

• 28% housing ratio: gross monthly income multiplied by 28%.
• 36% total-debt ratio: gross monthly income multiplied by 36%, minus other monthly debt payments.

The calculator uses the smaller amount as the housing budget, with a floor of zero. These percentages are defaults, not universal lender limits or a guarantee that the payment fits your life. CFPB defines debt-to-income ratio using monthly debt payments and income before taxes and deductions, and notes that limits vary by lender and product.

For $75,000 annual gross income, monthly gross income is $6,250. The housing default gives $1,750. The total-debt default gives $2,250 before other debts:

With $400 of debts, the housing ratio still sets the smaller budget. With $650, the debt ratio becomes the tighter constraint. Neither budget is the principal-and-interest payment until property costs are deducted.

Turn the budget into a home price

The calculator follows these steps:

1. Divide annual gross income by 12.
2. Compare the housing-ratio budget with the total-debt-ratio budget after other debts; use the smaller nonnegative amount.
3. Subtract entered monthly tax, insurance, HOA and mortgage-insurance costs.
4. Convert the remaining principal-and-interest budget into a fixed-rate, fully amortizing loan using your rate and term.
5. Add the down payment to the supported loan amount.

If no principal-and-interest budget remains, the calculator cannot estimate a supported financed home price. It does not treat your down payment alone as an affordability result.

Worked example: $85,000 income and $50,000 down

This illustration matches the calculator's initial scenario, not a current rate quote or local cost average:

Gross monthly income is $7,083.33. The housing ratio allows $1,983.33; the debt ratio leaves $2,050.00. The smaller $1,983.33 budget applies. Subtracting $400.00 in property costs leaves $1,583.33 for principal and interest. That supports a $250,500.46 loan, or a $300,500.46 home-price ceiling after adding the down payment. Figures use unrounded intermediate calculations.

Leaving out the $400.00 property costs raises the modeled ceiling to $363,784.79, overstating it by $63,284.33 in this scenario. Mortgage insurance is deliberately excluded in this illustration; $0 does not mean it is waived. Add the lender's estimate before using a low-down-payment scenario.

Gather property-specific costs before you shop

Use annual tax and insurance estimates divided by 12, monthly association dues and a mortgage-insurance estimate for the loan. Ask about assessments and any required additional insurance. These inputs stay fixed in WiseCalc: taxes do not automatically change with the estimated home price, and mortgage insurance is not inferred from the down payment. Recalculate when better figures are available.

CFPB's home budget checklist separates ongoing ownership costs from upfront cash. Closing costs are additional to the down payment; CFPB describes a typical range of 2% to 5% of purchase price, with actual costs varying. Keep money for moving, repairs and savings goals before deciding what cash to enter as a down payment. This calculator does not subtract those costs from your savings.

Compare scenarios without treating the ceiling as approval

Run a baseline with property and lender estimates, then change one input at a time. Try higher property costs, a higher interest rate, or a different down payment while preserving your reserves. Compare the resulting monthly budget with what your household can actually pay.

The result does not evaluate credit, loan-to-value limits, program eligibility or approval. It also excludes maintenance, utilities, income taxes and other living costs. Lower ratios can test a smaller spending budget, but they cannot replace a complete household budget or lender review.

For a specific listing, use the Mortgage Payment Calculator to check its payment and the Down Payment Calculator to compare upfront scenarios. Use the Debt-to-Income Calculator to review ratios. These are complementary steps rather than additional salary-based price guesses.

Frequently asked questions

How much house can I afford on a $75,000 salary?

At the calculator's 28% default, $75,000 gross annual income gives a $1,750 monthly housing budget before the debt constraint and property costs. A home price still requires your down payment, rate, term, debts, taxes and insurance. Use the table above to see when debt lowers that budget.

Should I enter gross income or take-home pay?

Enter annual income before taxes and deductions in the calculator. Separately check the resulting total payment against take-home pay, other expenses and savings priorities. Using net income with the gross-income defaults answers a different question.

Is a 20% down payment required?

Not for every mortgage. CFPB explains that mortgage insurance commonly applies below 20% down and can add monthly or closing costs. Requirements depend on the loan. Twenty percent of a $300,000 purchase is $60,000, not $30,000. Enter an actual cost estimate instead of assuming the calculator's zero insurance input means you qualify to avoid it.

Are taxes and HOA fees included?

Yes, if you enter them. They reduce the budget available for principal and interest. The model does not estimate them from the home price, so update them for the property you are considering.

Can I shop at the maximum calculated price?

Treat it as a ceiling under the entered assumptions, not a recommended purchase price. Check ongoing expenses, upfront cash and room for changes before setting your shopping budget. Lender approval is a separate assessment.

Your next step

Enter your income, debts and property estimates in the House Affordability Calculator. Save a baseline, test a less expensive scenario, and take the assumptions to your lender. A useful estimate tells you both the price and the monthly costs behind it.