Step 1: How Much Can You Afford?
Before you start browsing Zillow, you need a realistic price ceiling. This calculator uses the same Debt-to-Income ratios that real lenders use — so you'll know what the bank will actually approve, not just what a marketing site tells you.
Key Concepts
- Front-end DTI — Your housing costs divided by your gross monthly income. Lenders typically want this below 28%.
- Back-end DTI — All monthly debts (housing + car + student loans + credit cards) divided by gross income. The conventional limit is 43%.
- PITI — Principal, Interest, Taxes, and Insurance. This is your true monthly housing cost, not just the mortgage payment.
- Conservative vs. Aggressive — The calculator shows three scenarios. Conservative (25/36%) gives breathing room; Aggressive (31/50%) maxes out your approval but leaves little margin.
What to Look For
- Compare the "Conservative" and "Moderate" max prices — the gap shows how much risk you'd be taking on.
- Check if your down payment is at least 20% of the moderate price. If not, you'll pay PMI — an extra cost that doesn't build equity.
- Look at the rate sensitivity chart. If rates drop 1%, how much more house could you afford? This tells you whether it's worth waiting.
Step 2: Which Loans Do You Qualify For?
Knowing your price range is step one. Step two is figuring out which loan programs you actually qualify for. FHA, VA, Conventional, and USDA loans all have different requirements for credit score, down payment, and debt ratios.
Key Concepts
- Conventional Loans — Require 620+ credit score, 3–20% down. Best rates, no upfront funding fees, but PMI required below 20% down.
- FHA Loans — 580+ credit with 3.5% down (or 500+ with 10% down). More flexible DTI limits (up to 57%) but requires upfront and annual MIP.
- VA Loans — For veterans/active military. No down payment, no PMI, competitive rates. The gold standard if you qualify.
- USDA Loans — For rural areas. No down payment, income limits apply. Great for smaller towns and suburban edges.
What to Look For
- Check all programs you qualify for — you might have options you didn't know about. VA and USDA can save tens of thousands in down payment and insurance.
- Compare the total cost of each program over 5 years, not just the monthly payment. FHA's MIP never drops off, which costs more long-term.
- If you're close to a qualification threshold (credit score, DTI), see what small changes would unlock a better program.
Step 3: Can You Handle Rate Changes?
You found your price range and your loan program. But what happens if rates rise before you lock? Or if you have an ARM that adjusts? This stress test shows how your payment and DTI ratios change when rates move.
Key Concepts
- Payment Shock — When your housing payment increases significantly (30%+), lenders flag it as risk. Common with first-time buyers going from rent to mortgage.
- Rate Lock Risk — If rates rise 0.5–1% between pre-approval and closing, your payment could jump hundreds per month.
- DTI Ceiling — Even if you can "afford" a payment at today's rate, a rate bump might push your DTI over the lender's limit, killing your approval.
- PMI Impact — With less than 20% down, PMI adds $100–$300/month. Combined with a rate increase, this can significantly stretch your budget.
What to Look For
- Check the +1% and +2% scenarios. If your back-end DTI crosses 43% at +1%, your approval is fragile — consider a lower price point.
- Look at the PITI stacked bar chart. How much of the increase comes from interest vs. the tax/insurance baseline?
- If payment shock exceeds 30%, lenders may require extra documentation or reserves. Budget accordingly.
Step 4: How Much Cash Do You Need?
The down payment is only part of what you need at closing. Between lender fees, title insurance, prepaid taxes, and escrow deposits, the total cash required is often 3–5% more than the down payment alone. This calculator itemizes every dollar.
Key Concepts
- Closing Costs — Typically 2–5% of the loan amount. Includes lender origination, appraisal, title search, title insurance, attorney fees, and recording.
- Prepaids — Upfront payments for items that recur: daily interest from closing to month-end, first year's insurance premium, and several months of tax escrow.
- Earnest Money — The deposit you put down when the offer is accepted (usually 1–3% of price). This is credited toward your total cash at closing.
- Reserves — Lenders may require 2–6 months of PITI payments in savings after closing, especially for investment properties or lower credit scores.
What to Look For
- Check the total cash needed vs. your available savings. Don't forget you need reserves after closing — draining every dollar to close is risky.
- Look at the comparison chart across different down payment levels. Sometimes putting less down and keeping a larger reserve is the smarter move.
- Ask your lender about seller concessions — in many markets the seller can cover 3–6% of closing costs, significantly reducing your cash needs.
Step 5: What Does Ownership Really Cost?
Your mortgage payment is just the beginning. Maintenance, repairs, utilities, yard care, and capital expenses (roof, HVAC, water heater) add 30–50% on top of your PITI. This calculator reveals the true monthly cost of owning a home so there are no surprises.
Key Concepts
- 1% Rule — Budget 1% of your home's value annually for maintenance and repairs. A $300K home = $3,000/year = $250/month.
- Capital Expenses (CapEx) — Big-ticket replacements: roof ($8–15K), HVAC ($5–10K), water heater ($1–2K). These happen every 10–25 years, so save monthly.
- Hidden Costs — Utilities, lawn care, pest control, home warranty, and higher insurance deductibles. These add up to hundreds per month beyond PITI.
- Inflation Factor — Most ownership costs increase 2–4% annually. Your mortgage stays fixed (if 30-year), but everything else creeps up.
What to Look For
- Compare the "true monthly cost" to your take-home pay. Financial advisors recommend keeping total housing costs below 30% of net income.
- Look at the 5-year cumulative projection. The year-over-year growth shows how costs compound — make sure your income growth can keep pace.
- If the total looks uncomfortable, go back to Step 1 and try a lower price point. It's better to discover this now than after you've signed.