How much house can I afford? The math lenders actually use
Every affordability calculator on the internet gives a different answer because they hide different assumptions. Here are the ones lenders use, so you can run the numbers yourself.
Home State Bank mortgage teamCrystal Lake, IL · Appleton, WI · NMLS 478452Updated September 7, 20265-minute readDebt-to-income is the number that matters
Lenders compare your total monthly debt payments, including the new mortgage, to your gross monthly income. Most conventional loans cap that ratio around 43% to 45%; FHA can stretch to 50% with strong compensating factors. The old 28/36 rule (28% for housing, 36% for all debt) is a conservative version of the same idea.
The payment is more than principal and interest
The payment lenders count is PITI: principal, interest, taxes, and insurance, plus mortgage insurance if you put less than 20% down and any HOA dues. In McHenry County, taxes and insurance can be a quarter or more of the total. A $2,800 principal-and-interest payment is a $3,700 real payment.
Work the math backward
Take your gross monthly income, multiply by 0.43, subtract your existing monthly debts. That's your maximum total housing payment. Set aside roughly 25% to 30% of that for taxes and insurance, and what's left is the principal-and-interest budget that determines your loan amount. Our affordability calculator does exactly this.
Where a portfolio lender differs
Ratios are a proxy for risk, not the risk itself. A borrower with a 46% ratio, twelve months of reserves, and a stable employer is a better credit than one at 42% with nothing in the bank. Because Home State Bank keeps portfolio loans on its own books, we can underwrite the person, not just the ratio.
This article is general information, not financial, tax, or legal advice, and not a commitment to lend. Program terms, limits, and rates change; confirm current figures with a loan officer. Home State Bank, N.A. NMLS 478452. Member FDIC · Equal Housing Lender.
