How much house can you actually afford?

There are two answers to this question and they are rarely the same. One is what a lender will lend you. The other is what you can pay every month for thirty years while still having a life. Most affordability advice conflates them.

What the lender is actually measuring

Underwriting runs on debt-to-income ratio — your monthly debt obligations divided by your gross monthly income. Two versions get used:

• Front-end (housing) ratio: the full housing payment — principal, interest, property tax, insurance, mortgage insurance and any HOA dues — over gross income.
• Back-end (total) ratio: all of that, plus car loans, student loans, minimum credit card payments, child support and anything else that shows up as a monthly obligation.

Note what is not in there. Gross income, not take-home. No groceries, no childcare, no utilities, no retirement contributions, no health insurance premium. A lender is measuring the risk that you stop paying them, not whether your budget works.

That gap is the whole reason the approval number is bigger than the comfortable number.

The 43% rule everyone quotes is not the rule

You will read everywhere that 43% DTI is the limit. That number came from the original Qualified Mortgage definition, and it is not the test anymore.

The CFPB's General QM Final Rule removed the 43% debt-to-income limit from the General QM definition and replaced it with price-based thresholds — whether the loan's annual percentage rate exceeds the average prime offer rate for a comparable transaction by a specified amount. The legal safe harbor now turns on how the loan is priced relative to the market, not on a single DTI line.

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The number the approval leaves out

Run the home affordability calculator and you get a price range from your income, debts and down payment — including mortgage insurance, which is part of the payment a lender counts and is easy to forget when you are doing this in your head.

Then do the second calculation, which nobody does for you: take the full monthly housing figure and add the things a lender ignores.

• Utilities, which are usually higher than in a rental
• Maintenance — a real annual figure, not zero
• The repairs that arrive on their own schedule
• Anything you are currently saving each month that you intend to keep saving

If the total still works, the approval number is fine. If it does not, the approval number was never the answer.

Things that quietly change what you qualify for

• Paying off a car loan. Removing a $450 monthly obligation frees a large amount of borrowing capacity — often far more than the same money added to the down payment.
• Your credit score, which moves the rate, which moves the payment, which moves the DTI.
• Loan type. VA, FHA and conventional have different insurance structures and different ratio tolerances, and they produce materially different maximum prices from identical income.
• Property taxes, which vary enough by county to move the affordable price by tens of thousands. Quotes using the seller's stale assessment flatter the number.
• HOA dues, which count in full against you and buy you no equity.

What to ask

1. What is my back-end DTI at this price, and what does your system allow for my file? Not what the internet says.
2. What tax and insurance figures are in this quote? Stale numbers here are the single most common reason a payment comes in higher than expected.
3. What would clearing this specific debt do to my approval? Sometimes a $6,000 car balance is worth $40,000 of house.
4. What is the payment at the top of my approval, and could I pay it in a year where the roof goes?

A lender's maximum is a ceiling derived from your gross income and your listed debts. It is a fact about the loan, not a recommendation about your life. Borrow what works in the second calculation, and treat the difference as the margin that keeps the house enjoyable.

Sources: CFPB, General QM Final Rule, which removed the 43% DTI limit from the General QM definition and replaced it with price-based thresholds.