Meet the Home Affordability Calculator: What the Bank Says You Can Borrow vs. What You Should
Mortgage lenders pre-approve people for shocking amounts. The formula is simple: your debt-to-income ratio can go as high as 43% for conventional loans, and FHA loans go even higher. At $100,000 of income, that's a $3,583/month housing payment — which buys a lot of house and leaves not much for everything else.
The 28/36 rule is a smarter guardrail. Alistair's Home Affordability Calculator uses it to show what you can comfortably afford — not just what a bank will lend you.
The 28/36 Rule
28% — Housing Expense Ratio
Your total housing payment (mortgage principal + interest + property taxes + insurance + HOA) should not exceed 28% of your gross monthly income.
36% — Total Debt Ratio
All your debt payments combined (housing + car + student loans + credit cards + everything else) should not exceed 36% of your gross monthly income.
A bank might approve you at 43%. That doesn't mean you should spend 43%. The 28/36 rule leaves room to save, invest, and handle surprise expenses without a mortgage payment that suffocates you.
What the Tool Calculates
The microtool takes your annual income, monthly debt payments, down payment, mortgage rate, property tax rate, and insurance — then computes:
- 28% housing budget: The maximum monthly housing payment under the rule
- 36% total debt budget: The ceiling on all debt combined
- Max affordable home price: The purchase price that fits within both ratios
- Estimated monthly payment: Principal, interest, taxes, and insurance at that price
- Comfortable home price: A more conservative number — typically 80% of max affordability
Real Numbers: A $100K Earner with Moderate Debt
- Annual income: $100,000 ($8,333/month gross)
- Monthly debt: $500 (car payment)
- Down payment: $60,000
- Mortgage rate: 6.5%
- Property tax: 1.2%
- Annual insurance: $1,200
The 28% housing budget: $8,333 × 0.28 = $2,333/month maximum housing payment
The 36% total budget: $8,333 × 0.36 = $3,000/month max total debt Room after existing $500 debt: $2,500/month for housing
The binding constraint here is the 28% rule at $2,333.
Working backward from $2,333/month (subtracting $275/month for taxes and $100/month for insurance), the principal + interest budget is about $1,958/month. At a 6.5% rate on a 30-year loan: that supports a mortgage of approximately $310,000.
Add the $60,000 down payment: the max affordable home price is roughly $370,000.
What a bank would approve: At 43% DTI, the bank would approve a housing payment up to roughly $3,083/month — supporting a home price closer to $510,000. That's a $140,000 difference between "approved" and "affordable."
The tool also shows a comfortable price: around $295,000 (80% of max). At this price, the housing payment is about $1,870/month — leaving significantly more breathing room for savings, travel, childcare, or the unexpected.
Why Banks Are Not Your Friend Here
Banks make money on the size of your loan. A $510,000 mortgage generates more interest revenue than a $310,000 mortgage. The pre-approval letter isn't financial advice — it's a maximum bid price designed to benefit the lender.
Alistair uses the 28/36 rule because it's a widely accepted measure of housing affordability that prioritizes your financial health over the bank's loan volume.
That's what this microtool does. Calculate what's comfortable — then use the bank's pre-approval as a ceiling, not a target.