How Much House Can I Actually Afford?

Qualified ≠ Affordable

Here's the most honest thing I can tell you as a broker who's guided hundreds of buyers through this process: the amount a lender approves you for and the amount you should actually spend are almost never the same number.

A lender's job is to assess risk — can you, statistically, make this payment every month without defaulting? Your job is different. Your job is to buy a home that lets you still live your life: save for retirement, take a vacation, handle an emergency, sleep at night.

Most affordability articles online will run you through a calculator, spit out a number, and call it done. This guide goes deeper. We're going to walk through the technical math — how a monthly payment is actually calculated down to the penny — and then we're going to layer on the fiscal discipline that separates homeowners who thrive from those who survive.

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Start With Your Gross Monthly Income

Everything in the affordability equation flows from one number: your gross monthly income. This is your pre-tax, pre-deduction income — what shows up at the top of your pay stub, not the deposit that hits your bank account.

If you're salaried, this is straightforward: divide your annual salary by 12. If you're hourly, multiply your hourly rate by your typical weekly hours, then by 52, then divide by 12. If you're self-employed, lenders will typically average two years of tax returns and use your adjusted gross income.

For households with two incomes, you'll combine both. But here's an important consideration: if one income is variable — commissions, gig work, seasonal employment — most lenders will either discount it or require 24 months of documented history before counting it.

A Quick Example to Carry Forward

Let's use a household earning $95,000 per year — close to the median household income in most major Texas metros. That comes out to roughly $7,917 per month gross. We'll use this number throughout the rest of the guide.

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The Debt-to-Income Ratio: Your Lender's Measuring Stick

Lenders use two ratios to evaluate whether you can carry a mortgage. Both are expressed as a percentage of your gross monthly income, and understanding them is critical.

The front-end ratio (sometimes called the "housing ratio") measures only your proposed housing payment — principal, interest, taxes, and insurance — against your gross monthly income. Conventional lenders generally want this at or below 28%. FHA is slightly more lenient, allowing up to 31%.

The back-end ratio (or "total DTI") includes your housing payment plus all recurring monthly debt obligations: car payments, student loans, minimum credit card payments, personal loans, and child support. Conventional lenders typically cap this at 36% to 45%, depending on your credit score and down payment. FHA allows up to 43%, sometimes higher with strong compensating factors.

Here's the part most calculators miss: if you already carry $500/month in car payments and $300/month in student loans, that $800 comes straight off your back-end limit. On a 36% back-end ratio, that leaves only $2,050 for your total housing payment — not the $2,217 the front-end ratio might suggest.

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The Full Monthly Payment: PITI Explained

Your monthly mortgage payment isn't just principal and interest. The actual number that leaves your account every month is called PITI — and every letter matters.

P — Principal. The portion of your payment that reduces your loan balance. In the early years of your mortgage, this is a surprisingly small piece of the pie. On a 30-year loan, it might be less than 25% of your payment in Year 1.

I — Interest. The cost of borrowing the money. This is the lender's profit, and it dominates your payment in the early years. At current rates around 6.2–6.5%, this is substantial.

T — Property Taxes. In Texas, this is a major factor. With no state income tax, Texas funds its schools, counties, and municipalities through property taxes. The statewide effective rate runs roughly 1.4% to 1.8% of your home's assessed value, but some counties — particularly in the DFW metro, Harris County, and Travis County — push well above 2% when you stack all taxing entities.

I — Homeowners Insurance. This protects your property and your lender's collateral. Texas is one of the most expensive states for homeowners insurance due to hail, hurricanes, and severe storm exposure. The statewide average runs roughly $3,300 to $4,900 per year, and coastal areas can exceed $10,000 annually.

Plus Two More That Don't Fit the Acronym

PMI (Private Mortgage Insurance). If your down payment is less than 20%, your lender will require PMI. This typically adds 0.5% to 1% of the loan amount per year, divided into monthly payments. On a $280,000 loan, that's $117 to $233 per month. PMI drops off once you reach 20% equity.

HOA Dues. If the property is in a homeowners association, monthly dues are part of your housing cost. In Texas, these range from $25/month in a basic subdivision to $400+ in amenity-heavy master-planned communities.

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How to Calculate Your Exact Payment

Enough conceptual talk — let's do the math. The mortgage payment formula uses the loan amount, the monthly interest rate, and the total number of payments to produce your monthly principal-and-interest payment. From there, we'll add taxes, insurance, and PMI to get your real number.

Worked Example: $335,000 Home, 10% Down, 6.3% Rate

Let's walk through this step by step with a home near the current Texas median.

That $1,866 is only your P&I payment. Now let's build the full PITI:

At $2,845 per month, that $335,000 home would represent a 36% front-end ratio for our $95K-income household. A lender might approve it. But I'd tell you it's too tight. You'd be stretching to make it work, and one surprise expense could put you in a tough spot.

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Try the Math Yourself

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The Costs Nobody Mentions Until Closing

The monthly PITI payment is your recurring obligation, but buying a house has a long tail of costs that can catch unprepared buyers off guard. Let me lay them all out.

Upfront Costs (Due at or Before Closing)

Closing costs typically run 2% to 5% of the purchase price. On a $335,000 home, that's $6,700 to $16,750. These include lender fees (origination, underwriting, appraisal), title insurance, escrow funding, recording fees, and prepaid items like your first year of insurance and initial tax escrow deposits. Your lender is required to provide a Loan Estimate within three business days of your application — review it line by line. For a detailed breakdown of what to expect, the CFPB's closing cost guide is a solid reference.

Earnest money — typically 1% to 2% of the purchase price — is due when your offer is accepted. This is applied toward your down payment or closing costs, but it's capital you need liquid and available on short notice. Under Texas's buyer representation agreements (required since January 1, 2026, under TREC rules following SB 1968), you'll also want to understand your obligations regarding agent compensation and how that may factor into your overall transaction costs.

Home inspection ($350–$600 for a typical Texas single-family home) and any specialty inspections (foundation, septic, well, termite) are paid out of pocket and are not refundable if the deal falls through.

Ongoing Costs Beyond PITI

Maintenance and repairs. The standard guidance is to budget 1% to 2% of your home's value annually for maintenance. On a $335,000 home, that's $3,350 to $6,700 per year — or $280 to $558 per month. Roofs, HVAC systems, water heaters, and appliances all have finite lifespans, and Texas heat is particularly hard on HVAC units.

Utilities. If you're coming from an apartment, prepare for a meaningful jump. A 1,800-square-foot home in Texas can easily run $250 to $400/month across electricity, water, gas, trash, and internet — with summer electric bills spiking well above that.

Yard care. Whether you do it yourself (equipment costs, water) or hire someone ($100–$200/month for basic service), this is a real line item in your budget.

Furniture and move-in costs. The median American spends $9,000 to $12,000 furnishing a first home. Even if you spread it out, this draws down your cash reserves.

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How Interest Rates Change Everything

Interest rates get all the headlines, and for good reason — a 1-point swing in your rate changes your payment dramatically and shifts how much house you can responsibly target. Here's the real impact, calculated on a $301,500 loan (our example home with 10% down).

The difference between a 5.5% rate and a 7.0% rate on the same loan? Nearly $300 per month and over $105,000 in additional interest over the life of the loan. This is why your credit score matters — it's the primary lever that determines which end of the rate spectrum you land on. Check your credit through AnnualCreditReport.com (it's free and federally authorized) well before you start shopping.

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The Fiscal Discipline Framework

This is the section that separates this guide from every other affordability article on the internet. I've watched buyers at every income level make the same mistake: they treat their lender's maximum approval as a target rather than a ceiling. Here's the framework I use with my own clients.

Rule 1: Budget to Your Net, Not Your Gross

DTI ratios use gross income because lenders need a standardized metric. But you don't live on gross income — you live on what deposits into your account after taxes, retirement contributions, and health insurance premiums. A 28% front-end ratio on gross income can easily become 40% or more of your actual take-home pay. Do the math on your net income and make sure your housing payment doesn't consume more than a third of it.

Rule 2: Stress Test Your Payment

Before you commit, ask yourself: could I make this payment if one of these things happened?

My income dropped by 20% for six months. My car died and I had to take on a $400/month payment. A major repair hit — $8,000 for a new HVAC, $12,000 for foundation work. My property taxes jumped 10% in one year (this happens in Texas). My insurance premium spiked 25% at renewal (also common in Texas).

If the answer to any of those is "no, I'd be in serious trouble," you're looking at too much house.

Rule 3: The 25/35/45 Framework

This is my personal recommendation to clients, and I stand behind it:

Rule 4: Your Home Is Not Your Entire Financial Plan

Home equity is real, and over time, homeownership is generally a solid financial foundation. But it's not liquid, it's not guaranteed to appreciate in the short term, and it shouldn't come at the cost of your retirement savings, your emergency fund, or your ability to invest in other areas of your life.

I've seen buyers drain their 401(k) for a down payment, skip retirement contributions to afford the mortgage, or carry no savings because every dollar goes to the house. That's not building wealth — that's concentrating all your risk in one illiquid asset. For a broader view of how homeownership fits into your overall financial health, the CFPB's "Owning a Home" toolkit is an excellent resource.

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Cash Reserves: The Non-Negotiable Buffer

Before you buy, you need cash for more than just the down payment and closing costs. You need reserves — money that sits in a savings account and does nothing except give you peace of mind and protection against the unexpected.

My minimum recommendation: 6 months of total housing costs (PITI + maintenance estimate) in liquid savings, after your down payment and closing costs are funded. For our worked example at $2,845/month PITI plus a $280 maintenance budget, that's roughly $18,750 in reserves.

Is that a lot? Yes. Is it more than most articles recommend? Also yes. But I've watched what happens when buyers have no cushion. A job transition, a medical bill, an unexpected repair — any of these can cascade into missed payments, credit damage, and real financial hardship. The reserve fund prevents that cascade.

If that number feels overwhelming, there are programs that can help with down payment assistance — FHA loans require as little as 3.5% down, and some Texas-specific programs through the Texas State Affordable Housing Corporation (TSAHC) and TDHCA's homebuyer programs offer grants and forgivable second liens. But lower down payments mean higher monthly costs (larger loan + PMI), so the discipline framework still applies.

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Special Considerations for Texas Buyers

If you're buying in Texas, there are a few state-specific factors that meaningfully affect your affordability picture.

Property Taxes Are No Joke

Texas has no state income tax, which is a real benefit. But property taxes are how the state funds local services, and they can be aggressive. The statewide effective rate is approximately 1.4% according to the Tax Foundation, but many suburban counties in the DFW, Houston, and Austin metros land between 1.8% and 2.5% when you combine all taxing entities (county, city, school district, MUD, etc.).

The homestead exemption provides meaningful relief — $100,000 off your assessed value for school district taxes, plus additional exemptions from cities and counties. Make sure you file it. You can do this through your county's Central Appraisal District, and the Texas Comptroller's property tax page has links to every district.

Insurance Costs Are Elevated and Rising

Texas homeowners insurance averages roughly $3,300 to $4,900 per year statewide, with significant variation by location and property type. Premiums have risen sharply — more than 50% since 2019 by some measures — driven by severe storm losses, rising construction costs, and reinsurance market dynamics. Coastal areas, hail-prone corridors (particularly North Texas), and older homes face the highest premiums.

When budgeting, get an actual insurance quote before you make an offer — not after. Many buyers are shocked to discover their insurance will cost $400+/month when they assumed $200. Your agent or broker should help you think through this before you fall in love with a property.

Market Conditions as of Early 2026

The Texas housing market is currently balanced to buyer-favorable in most metros. The statewide median sale price sits around $334,000, with months of supply hovering near 5 to 6 months in many areas. Austin's median has pulled back from its pandemic peak, and inventory is elevated. Dallas is experiencing a correction in certain price tiers. Houston and San Antonio remain relatively stable.

For buyers, this is a favorable moment: more inventory means more negotiating power, more time to make decisions, and less pressure to waive contingencies. Use that leverage wisely.

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Your Action Checklist

If you've read this far, you're serious. Here's the sequence I recommend to every buyer I work with.

Step 1: Know your numbers. Pull your credit reports at AnnualCreditReport.com. Calculate your gross and net monthly income. List every recurring monthly debt obligation.

Step 2: Set your ceiling, not your target. Apply the 25% front-end ratio to your gross income. That's your maximum PITI. If you can go lower, go lower.

Step 3: Build your reserves. Fund your down payment, closing costs, and a 6-month reserve before you start seriously shopping. If you're not there yet, that's your first priority — not looking at houses.

Step 4: Get pre-approved, not pre-qualified. A pre-approval involves actual income and credit verification. A pre-qualification is an estimate. Sellers and listing agents take pre-approvals seriously.

Step 5: Get an insurance quote early. Before you fall in love with a house, get an insurance estimate for that property. In Texas, this can make or break your budget.

Step 6: Work backward from your payment to your price. Don't start with a dream price and hope the payment works. Start with the payment you can sustain and find the home that fits within it.

Step 7: Hire a good buyer's agent. Under Texas law (as of January 2026), you'll sign a written buyer representation agreement before touring homes. This is a good thing — it formalizes the relationship and clarifies the agent's obligations to you. Choose someone who will tell you the truth about what you can afford, not just what you want to hear.