How much house can you actually afford?
The lender's answer to "how much house can I afford" is almost always more than the honest financial answer. Loanplaced advisors run three different affordability tests — and recommend borrowing to the strictest one, not the loosest.
Test 1: The lender maximum
The mortgage lender's calculation, in simple form: how big a monthly payment can you make while keeping your total DTI under 45%?
- Gross monthly income: $9,000
- Non-housing debt payments: $800
- Maximum total DTI (45%): $4,050
- Maximum housing payment (PITI): $4,050 - $800 = $3,250
At 7% mortgage rate, a $3,250 payment supports roughly $410,000 in mortgage. Plus 10% down = $455,000 house budget (lender's max).
Test 2: The 28/36 rule (financial planner standard)
Established financial planning guidance: housing costs (PITI) should be under 28% of gross monthly income, and total debt payments (including housing) under 36%.
- Housing max (28%): $9,000 × 0.28 = $2,520
- Total debt max (36%): $9,000 × 0.36 = $3,240; minus $800 existing debt = $2,440
- Use the lower: $2,440/month for housing
That supports roughly $305,000 in mortgage. Plus 10% down = $340,000 house budget (28/36).
Test 3: Your actual budget
Take your current housing cost (rent or existing mortgage). Add $500-$1,000 for the maintenance, property tax, and insurance surprises that come with owning. That's roughly your sustainable housing payment.
Example: currently paying $2,100 rent. Add $700 for ownership overhead. Sustainable housing budget: $2,800/month.
That supports roughly $355,000 in mortgage. Plus 10% down = $395,000 house budget (actual).
The three answers, compared
| Test | Monthly PITI | Supported mortgage @ 7% | House budget (10% down) |
|---|---|---|---|
| Lender maximum | $3,250 | ~$410,000 | ~$455,000 |
| 28/36 rule | $2,440 | ~$305,000 | ~$340,000 |
| Actual budget | $2,800 | ~$355,000 | ~$395,000 |
Loanplaced recommends borrowing to the strictest test that still meets your needs — which for most families is somewhere between 28/36 and your actual budget. The lender maximum is a ceiling, not a target.
What the lender max doesn't include
The 45% DTI cap looks reasonable on paper. It ignores several real costs of homeownership:
- Maintenance — typically 1-2% of home value annually
- Property tax reassessment — buyer's first tax bill often higher than seller's last
- HOA fees — separate from PITI, can be substantial
- Insurance rate escalation — rising 8-15%/year in many markets
- Rate reset risk — if you took an ARM
- Emergency fund contribution — 3-6 months of expenses saved separately
A 45% DTI mortgage looks fine on paper and feels tight in real life. This is where Loanplaced advisors push back.
The Loanplaced 25% rule for total housing
For borrowers who want a single rule of thumb: keep total housing costs (PITI + HOA + reasonable maintenance reserve) under 25% of net take-home pay. It's stricter than 28/36. It leaves room for retirement contributions, emergency fund, and life.