Question 1

What debt-to-income ratio do lenders require?

Accepted Answer

Most conventional lenders require a total DTI ratio of 43% or less. FHA loans may allow up to 50% in some cases. The front-end ratio (housing costs only) should typically not exceed 28-31% of gross income. For a $85,000 income ($7,083/month), 43% DTI allows $3,046 in total monthly debt payments. If you have $500 in existing debts, up to $2,546 can go toward housing.

Question 2

How much down payment do I need?

Accepted Answer

Conventional loans typically require 3-20% down. FHA loans require as little as 3.5%. VA and USDA loans offer 0% down for eligible borrowers. Putting less than 20% down usually requires private mortgage insurance (PMI), adding 0.5-1% of the loan to your annual costs. A larger down payment means a smaller loan, lower monthly payments, and potentially better interest rates.

Question 3

How does interest rate affect home affordability?

Accepted Answer

Interest rate has a dramatic effect on affordability. At 4% on a 30-year mortgage, a $2,000/month payment supports a $419,000 loan. At 7%, that same payment only supports a $301,000 loan -- a $118,000 reduction in buying power. Each 1% increase in rate reduces your purchasing power by approximately 10-12%.

Question 4

Should I buy the most expensive house I can afford?

Accepted Answer

Financial experts recommend spending no more than 28-30% of gross income on housing, even if you qualify for more. Buying at the maximum leaves no room for savings, emergencies, or lifestyle spending. Consider future expenses like maintenance (1-2% of home value per year), utilities, and potential interest rate increases if you have an adjustable-rate mortgage.

Home Affordability Calculator

Frequently Asked Questions