How much house can I afford?

The payment a lender counts

Lenders do not qualify you on principal and interest alone. The housing payment they use includes principal and interest, property taxes, homeowners insurance, mortgage insurance if the loan has it, and any homeowners association or condominium dues. In Pennsylvania and New Jersey, property taxes are often the piece that surprises buyers: two houses at the same price in neighboring towns or school districts can carry very different tax bills, and so very different monthly payments. That is why we work from the actual tax record for a house instead of a county average.

Debt-to-income, in plain terms

Your debt-to-income ratio, or DTI, is your monthly obligations divided by your gross monthly income, before taxes. Lenders look at it two ways: the housing payment by itself, and the housing payment plus your other monthly debts. The debts that count are the ones on your credit report and in your court orders: car loans and leases, student loans, credit card minimum payments, personal loans, other mortgages, and child support or alimony you pay. Everyday costs such as utilities, groceries, phone bills and car insurance are not part of the ratio.

There is no single cutoff. Each program has its own benchmark, and automated underwriting weighs the ratio against the rest of the file: credit history, savings left after closing, and the size of the down payment. Conventional loans run through automated underwriting can be approved with a total ratio as high as 50 percent when the rest of the file is strong. FHA, VA and USDA loans use their own benchmarks, and VA also checks that enough income is left over each month after the bills are paid. A lower ratio makes every program easier.

Which income counts

Salary and hourly pay count as documented on pay stubs and W-2s. Overtime, bonus, commission and self-employment income usually need a history, typically about two years, and are averaged; if that income has been falling, the lender may use the lower recent figure. Social Security, pension, disability and other continuing income can count as well. Income you cannot document does not.

The cash side

Affordability is not only the monthly payment. You need funds for the down payment, closing costs and the first deposits into your escrow account, and some loans require savings left over after closing. Gifts from family are allowed on many programs when they are documented, and eligible buyers can add PHFA assistance in Pennsylvania or NJHMFA assistance in New Jersey. For what closing actually costs, see Closing costs in PA and NJ.

From a rough range to a real number

1. Use the payment calculator to see how price, down payment and taxes change the monthly payment.
2. Send the one-minute form. No Social Security number is needed for that step.
3. A licensed loan officer reviews income, debts and assets with you and, with your authorization, credit.
4. You get a pre-approval letter for the price range your file supports.

Common questions

This guide is general information, not a commitment to lend or a quote. Program rules change and lender requirements can be stricter than agency minimums. Your loan officer confirms what applies to your file.