Lenders set limits on how much you can afford to borrow based on your debt-to-income (DTI) ratio — this is a measure of your total debt, including your new house payment, divided by your monthly earnings. Our mortgage calculator is based on conventional loan guidelines that typically cap your DTI ratio at 45%, although exceptions are possible up to 50%.
Example calculationHere’s a quick example of how to determine whether you can afford a mortgage, assuming your monthly debt (including your estimated mortgage payment) is $2,500 and you make $6,000 per month before taxes:
$2,500 monthly debt payments divided by $6,000 monthly income = 41.67% DTI ratio
Since the conventional DTI ratio maximum is 45% to 50%, you likely can afford this payment.
You can adjust the DTI ratio on a home affordability calculator to get an idea of home prices that fit within your budget.
CONVENTIONAL RATE CHANGES FOR FOR HIGH-DTI AND OTHER LOANS IN 2023
Beginning Aug. 1, 2023, if you have a conventional loan and your DTI rises above 40%, you could face higher interest rates or a fee at closing. This added cost only applies to those borrowing more than 60% of their home’s value and the fee will range from 0.25% to 0.375% of the loan amount.
Other fees — not related to your DTI — may also apply if you:
- Purchase an investment property, second home or multiunit property
- Purchase a manufactured home or a condo
- Choose an ARM loan
- Choose a high-balance loan