How Much Home Can I Afford? A 2026 Buyer's Worksheet

One of the most common mistakes first-time buyers make is starting the house hunt before answering the one question that should come first: how much home can I actually afford? Lenders will tell you the maximum they’ll approve; your lifestyle and financial goals define the number you should actually spend. Here’s a framework for finding your real number in 2026.

Step 1: Start With Your Gross Monthly Income

Lenders qualify you on gross (pre-tax) income, which often surprises buyers. Add up all income sources you can document:

• Base salary or wages
• Overtime (if consistent over 2 years)
• Bonus income (2-year average)
• Self-employment income (2-year average, after business expenses)
• Rental income (75% of market rent is typically countable)
• Alimony or child support (if you choose to disclose)

Example: $85,000 salary → $7,083 gross monthly income

Step 2: Apply the Debt-to-Income (DTI) Rule

Lenders use two ratios to limit how much housing costs you can carry:

Front-End Ratio (Housing Expense Ratio)

Your proposed housing payment (principal + interest + taxes + insurance + HOA + PMI) should not exceed 28–31% of gross monthly income for conventional loans. FHA allows up to 31% front-end.

• $7,083 × 31% = $2,196 maximum housing payment

Back-End Ratio (Total DTI)

All monthly debt payments (housing + car loans + student loans + credit card minimums) should stay under 43–45% for most programs. FHA allows up to 50% in some cases.

• $7,083 × 43% = $3,046 total debt budget
• Subtract existing debts (e.g., $400 car payment) = $2,646 available for housing

Your qualifying payment is the lower of these two results.

Step 3: Translate Payment to Purchase Price

With an estimated maximum monthly principal-and-interest payment, you can back into a purchase price. In 2026, at illustrative rates, here’s a rough guide:

Max P&I Payment	Approx. Loan Amount (30-yr fixed, 7%)
$1,500	~$226,000
$2,000	~$301,000
$2,500	~$376,000
$3,000	~$451,000

Remember: your actual mortgage payment also includes property taxes, insurance, and possibly PMI — these can add $300–$700/month or more depending on your location and down payment.

Step 4: Count Your Down Payment and Closing Costs

Your cash to close includes:

1. Down payment: 3% to 20%+ of the purchase price
2. Closing costs: Typically 2–5% of the purchase price (loan origination, title fees, appraisal, prepaid taxes/insurance, etc.)
3. Cash reserves: Most lenders want to see 2–6 months of mortgage payments in savings after closing

Example for a $400,000 home:

• 5% down payment: $20,000
• Closing costs (3%): $12,000
• 2-month reserves: ~$4,500
• Total cash needed: ~$36,500

Many buyers are surprised that the down payment isn’t their only upfront expense. Plan for closing costs early.

Step 5: Factor In the Real Monthly Cost of Ownership

The mortgage payment is just the beginning. Homeownership comes with:

• Property taxes: Varies widely by state and county; in Texas, roughly 1.6–2.2% of assessed value annually
• Homeowner’s insurance: Typically $100–$200/month for a median-priced home
• PMI: 0.2–1% of loan annually if your down payment is under 20%
• HOA dues: $0 to $500+/month depending on community
• Maintenance: Budget 1% of home value per year ($4,000 on a $400,000 home)
• Utilities: Often $100–$300/month more than renting, especially for larger homes

A buyer financing $380,000 might have:

• P&I: $2,529/month
• Taxes: $550/month
• Insurance: $150/month
• PMI: $120/month
• Total: ~$3,349/month — significantly more than the quoted mortgage payment

Step 6: The Comfort Test

Once you have your total estimated monthly cost, run this quick comfort test:

1. Subtract your total housing cost from your take-home pay
2. Subtract your non-debt monthly expenses (groceries, childcare, transportation, subscriptions, savings goals)
3. Is there a comfortable buffer left over?

If the math leaves you $100 from zero every month, you’re house-rich and cash-poor. Financial planners often suggest keeping total housing at 25–30% of take-home pay — more conservative than lender maximums, but it preserves breathing room.

What Changes in 2026?

The 2026 conforming loan limit is $832,750, meaning buyers in most markets can access conventional financing up to that amount without jumping to jumbo territory. FHA loans go up to a floor of $541,287 — useful for buyers relying on government-backed financing in mid-cost markets.

If your target price exceeds the conforming limit in your county, ask about jumbo options. Summit Crest offers jumbo financing for well-qualified borrowers, often with competitive rates that rival conforming products.

Your Next Step

Run your own numbers before you fall in love with a house. A pre-approval from Summit Crest is free, fast, and gives you a real shopping budget — not a guess. We’ll pull credit, review income documentation, and issue a letter you can use with confidence when you’re ready to make an offer.