Two limits, and the smaller one wins
Lenders apply two ratios. The front-end ratio caps your housing payment at roughly 28% of gross monthly income. The back-end ratio caps all debt payments — housing plus cars, cards and student loans — at 36% traditionally, or up to 43–50% under modern programs. Your affordable price is set by whichever limit binds first, which for most buyers with a car payment is the back-end.
Why the bank's number is bigger than your number
Underwriting uses gross income. You live on net. On a $110,000 salary, gross monthly income is about $9,167 but take-home is closer to $6,600 after tax and benefits. A payment at 28% of gross is 39% of what actually reaches your account. That gap is why so many "approved" buyers feel squeezed. Run the calculation a second time using take-home pay to find the number you can live with, not merely the number you can borrow.
Costs the ratio ignores completely
- Maintenance. Budget 1% of the home's value annually — $4,500 a year on a $450,000 house, lumpy and unpredictable.
- Utilities. Usually higher than an apartment; a larger house costs more to heat and cool.
- Closing costs. 2–5% of price, paid at signing on top of the down payment.
- Furnishing and moving. Consistently underestimated by first-time buyers.
How to increase your number honestly
Retiring a car loan removes its full payment from the DTI calculation and can add tens of thousands to your price ceiling — far more than the same money applied to the down payment. Raising your credit score before applying lowers the rate, which raises purchasing power at the same payment. Adding a co-borrower with income and clean credit works, though it also adds their debts.
The pre-approval step
This calculator estimates. A lender pre-approval verifies income and credit and gives you a figure sellers will take seriously. Get one before touring homes — and treat the pre-approval amount as a ceiling, not a target.