How it works
Lenders divide monthly payments by gross monthly income. The front-end ratio counts housing only: rent, or the mortgage payment with property tax, insurance, HOA and PMI. The back-end ratio adds the minimum payments on your debts. Under the 28/36 rule, housing can take 28% of gross income, and housing plus debts 36%, so the housing budget is the lower of the two. In the example, $110,000 a year is $9,167 a month; a $2,400 housing payment and $650 of loan payments give 26.2% front-end and 33.3% back-end, within 28/36. The most for housing would be $2,567 (the front-end limit; the back-end limit allows $2,650). At a 43% back-end limit it would be $3,292, and at 50%, $3,933. The home affordability spreadsheet turns that budget into a maximum price, with your down payment, rate, taxes and PMI.