What Lenders Mean by Affordable, and Why It Is Not What You Mean
Two ratios decide your mortgage. Neither of them knows anything about your actual life.
The two ratios
Mortgage underwriting runs on debt-to-income. The front-end ratio caps housing costs at a share of gross income — classically 28%. The back-end ratio caps all your debt payments, housing included, typically at 36%, though many programmes stretch to 43% and some further.
You get the smaller of the two. For most people carrying a car payment or student debt, the back-end ratio binds first, which is why clearing a $400 car loan can raise borrowing power more than a $5,000 pay rise.
Maximum borrowable amount
PV = PMT × [1 − (1 + r)⁻ⁿ] ÷ r
- PMT = monthly budget left after property tax, insurance and service charges
- r = monthly interest rate (annual ÷ 12)
- n = number of monthly payments
There is a circularity worth noting: property tax and insurance scale with the house price, but the price depends on how much is left after paying them. This calculator solves that simultaneously rather than guessing and iterating, which is why the escrow figure and the price always reconcile exactly.
Why the maximum is the wrong target
Every ratio here uses gross income — before income tax, before pension contributions, before childcare. A household at 36% of gross can easily be at 50% of what actually reaches their account.
The ratios also ignore everything a mortgage does not cover: maintenance runs roughly 1% of the property value a year, and buying at your ceiling leaves nothing for the boiler. The conservative row in the table above is a better planning number than the stretch row.
What the calculator leaves out
Mortgage insurance is the big one. A deposit below 20% usually triggers PMI or an equivalent premium, which is a real monthly cost not modelled here and which reduces what you can borrow. Closing costs, moving costs and any immediate repairs also come out of the same savings pot as your deposit.