Buying a home is the largest financial decision most people make — and one of the most emotionally charged. It’s easy to fall in love with a house that’s beyond your reach, or to let a lender’s pre-approval number set your budget instead of your own financial plan.
Here’s how I help clients approach the question of how much home they can truly afford.
Start With Your Monthly Cash Flow, Not the Pre-Approval Letter
Mortgage lenders will approve you for the maximum they’re willing to lend — which is often more than what’s comfortable for your lifestyle and financial goals. Your pre-approval is a ceiling, not a target. I always ask clients to build their home budget from their own monthly income and expenses first, then see what purchase price that translates to.
The Front-End Ratio: Your Housing Cost Limit
The front-end ratio measures your monthly housing costs as a percentage of your gross monthly income. Most lenders use 28% as the guideline — meaning your total housing payment (principal, interest, property taxes, and homeowners insurance) should not exceed 28% of your gross monthly income.
Formula: Annual gross income × 0.28 ÷ 12 = maximum monthly housing payment
Example: $80,000 annual income × 0.28 ÷ 12 = $1,867 maximum monthly housing payment
The Back-End Ratio: Your Total Debt Limit
The back-end ratio measures your total monthly debt obligations against your gross income — including housing, car loans, student loans, credit cards, and any other debt. Most lenders cap this at 36–43%.
Formula: Annual gross income × 0.36 ÷ 12 = maximum total monthly debt
The lower your existing debt load, the more mortgage payment you can comfortably carry within this limit.
Don’t Forget These Additional Costs
Your mortgage payment is only part of what you’ll pay to own a home. I always make sure clients budget for:
- Property taxes: In Texas, property tax rates vary by county and can be significant — often 1.5–2.5% of assessed value annually.
- Homeowners insurance: Typically $1,200–$3,000+ per year in Texas depending on your home and location.
- HOA fees: If applicable, these can range from $50 to $500+ per month.
- Maintenance and repairs: I recommend budgeting 1–2% of your home’s value per year for ongoing upkeep.
- Utilities: Larger homes cost more to heat, cool, and maintain — factor this into your monthly budget.
How Much Should You Put Down?
A 20% down payment eliminates private mortgage insurance (PMI), which can add $100–$300+ per month to your payment. If 20% isn’t possible, some loan programs allow 3–5% down — but I encourage clients to factor in the added cost of PMI when evaluating true affordability.
Find Your Number
Use the calculator below to determine how much home you can comfortably afford based on your income, debts, and down payment.