How we calculate

TruAffordability calculates two ceilings and takes the lower one. That gives you the full picture: what a bank will approve, and what your real life supports. Below, every data point and how they work together.

The two metrics

DTI max (bank-approved ceiling) is the most a lender would approve based on your debt-to-income ratio. We use the standard 28% front-end limit (housing costs divided by gross income) and 36% back-end limit (all debts divided by gross income). We also show a conservative 25/33 view.

Lifestyle max (real affordability) is what you can afford while keeping your current expenses, savings goals, and safety net intact. This is the number most calculators don't show you.

The binding constraint: whichever metric produces a lower number is your effective ceiling. If the bank would approve $500K but your lifestyle supports $380K, your true affordable range is $380K.

Income and tax estimation

We convert your gross income to net monthly income using:

• 2025 federal tax brackets by filing status (single, married filing jointly, head of household)
• Effective state tax rates for all 50 states + DC
• FICA contributions: Social Security (6.2% up to the wage base), Medicare (1.45%), and the 0.9% Additional Medicare Tax on earnings above $200K/$250K

The combined effective rate determines your take-home pay, which drives the lifestyle-based calculation.

Debt-to-income ratios

Front-end ratio: your monthly housing costs divided by your gross monthly income. Standard limit: 28%.

Back-end ratio: all monthly debt payments (housing + car loans + student loans + credit cards + other) divided by your gross monthly income. Standard limit: 36%.

We also calculate a conservative view at 25% front-end and 33% back-end thresholds. These are the ratios lenders use to decide how much to lend you. From these limits, we solve for the maximum home price that keeps your housing costs within the allowable DTI range, after accounting for property tax, insurance, PMI, HOA, and maintenance.

Your monthly housing costs

Six components make up your total monthly housing cost:

1. Principal & Interest: your mortgage payment, calculated from the loan amount, interest rate, and term.
2. Property Tax: estimated from the property tax rate you enter (national median is approximately 1.1%).
3. Homeowners Insurance: estimated from the insurance rate you enter.
4. PMI (Private Mortgage Insurance): applies when your down payment is less than 20%. Estimated at 0.8% annually.
5. HOA Dues: your monthly homeowners association fees, if any.
6. Maintenance: estimated as a percentage of home value for ongoing upkeep (default 1.25%).

Lifestyle-based affordability

Here's how the lifestyle ceiling is calculated:

• Start with your net monthly income (after taxes)
• Subtract your existing debts, essential expenses, discretionary spending, and savings goals
• Subtract a $500/month cash flow buffer as a safety margin
• The remaining amount is what's available for housing costs
• We solve for the maximum home price that keeps total housing costs within that available amount

This calculation uses a stable 20% down payment assumption so the number doesn't jump when you explore different target prices in the results.

Mortgage rate types

Four loan types affect your affordability differently:

• 30-Year Fixed Conventional: most common. Lower monthly payments, more total interest paid.
• 15-Year Fixed Conventional: higher monthly payments, less total interest, faster equity.
• FHA 30-Year: modeled as 0.25% below conventional rates. Requires as little as 3.5% down.
• VA 30-Year: modeled as 0.30% below conventional rates. Available to eligible veterans with 0% down.

When available, we use live rates from the Federal Reserve (FRED API). Otherwise, we use conservative fallback rates.

Stress-test scenarios

We run up to six scenarios to test how your finances hold up under pressure:

• Base Case: your current financial situation with the target home.
• Owner 1 Job Loss: what happens if the primary earner loses income.
• Owner 2 Job Loss: what happens if the secondary earner loses income (dual-income households only).
• Both Job Loss: worst case. Both incomes lost simultaneously (dual-income households only).
• Expenses Up 20%: what if essential costs rise significantly.
• Expenses Down 20%: what if you find ways to reduce spending.

Job loss scenarios account for unemployment benefits and any passive income you've entered. Each scenario shows whether you can cover essentials, how much of your lifestyle you'd maintain, and how long your emergency fund would last.

Our assumptions

Disclaimer

TruAffordability is an educational tool and does not constitute financial, legal, tax, or real estate advice. The calculations and scenarios provided are estimates based on the information you enter and general financial formulas. Consult a qualified financial advisor before making housing decisions. See our Terms of Service for full details.