Buying a home starts with a budget question, not a listing. The useful number is not the sticker price of the house — it is the monthly cost you can carry while still paying everything else you already owe. Lenders look at that picture before they pre-approve you, and you should look at it before you fall for a kitchen.
This guide walks through the pieces that go into that monthly cost, how down payment and PMI change it, and how to pressure-test a price with our mortgage calculator. The rates used in the examples come from Freddie Mac’s Primary Mortgage Market Survey as of October 1, 2026; your quote will differ.
What lenders look at
Four inputs dominate a conventional purchase underwrite:
- Income. Stable wages, salary, or documented self-employment income. Lenders usually annualize your pay and treat bonuses or overtime carefully.
- Debts. Credit cards, auto loans, student loans, child support and any other monthly obligations that show on your credit report.
- Down payment and reserves. Cash or gifts you can put toward the purchase price, plus liquid savings left after closing.
- Credit. Your score and history affect the rate and whether PMI is required or priced higher.
None of those four is the house price itself. The house price becomes a loan amount once you subtract the down payment; the loan amount, rate and term become a principal-and-interest payment; taxes, insurance and PMI (if any) sit on top.
Debt-to-income in plain terms
Debt-to-income (DTI) is the share of your gross monthly income that already goes to debt payments, including the new mortgage. If you earn $6,000 a month before taxes and your debts plus the new house payment would take $2,400, your DTI is 40%.
Lenders use DTI as a guardrail, not a score. A lower DTI leaves more room for the unexpected; a higher one can still close with strong credit, a larger down payment or compensating factors. The exact cutoff varies by loan program and lender. The point for you is simpler: start from take-home pay, not from the maximum a lender might stretch to.
Our paycheck calculator helps you see what actually lands in your account after federal tax, FICA and state withholding. Affordability that looks fine on paper but leaves no cash after rent-level housing costs is not affordability.
PITI: the full monthly housing cost
Principal and interest are only part of the bill. Most homeowners also pay:
- Property taxes, often escrowed monthly.
- Homeowners insurance, also often escrowed.
- Private mortgage insurance (PMI) on many conventional loans with less than 20% down.
Together, principal, interest, taxes and insurance are called PITI. PMI is separate but shows up in the same monthly draft. The CFPB explains that an escrow or impound account is how the lender collects and pays those taxes and insurance on your behalf.
Run a $400,000 home with 20% down ($80,000), a 30-year fixed rate of 7.28% (the Freddie Mac PMMS average for the week of October 1, 2026), $4,000 a year in property tax and $1,200 a year in insurance. Principal and interest alone are about $2,189 a month. Add tax and insurance and the total housing payment is about $2,623. Over the full term, interest on that loan is roughly $468,000.
That is the number to compare with your take-home pay and other debts — not the $400,000 sticker.
How the down payment changes PMI and the payment
On a conventional loan, lenders typically require PMI when you put down less than 20% of the purchase price. PMI protects the lender, not you, if you stop paying; the CFPB is clear on that point. It is usually collected as a monthly premium added to the mortgage payment, though some loans use an upfront premium instead.
Same $400,000 house, but only 10% down ($40,000). The loan rises to $360,000. At 7.28% for 30 years, principal and interest climb to about $2,463. With a PMI rate of 0.5% of the loan per year (the default illustrative rate in our calculator — your lender’s quote will differ), PMI adds $150 a month. With the same tax and insurance, the total payment is about $3,047.
That is roughly $424 more per month than the 20% down scenario, before you even count the larger interest bill over the life of the loan. Saving toward 20% is not always realistic, and PMI can be a bridge into ownership — just price it honestly.
A worked affordability check
Suppose you want the monthly housing payment near $2,700 including tax, insurance and PMI. A $350,000 home with 10% down ($35,000), 7.28% for 30 years, $3,500 annual tax, $1,200 insurance and 0.5% PMI lands around $2,678 a month. Principal and interest are about $2,155; PMI is about $131.
Whether that works depends on your salary and other debts. A single filer earning $75,000 in Texas with no 401(k) keeps about $61,593 a year after federal tax and FICA, or roughly $2,369 every two weeks. A $2,678 housing payment consumes more than one biweekly paycheck. That can be fine if other debts are low and the household has a second income; it is tight as a sole obligation.
Flip the process: pick a payment you can carry, then solve for price in the mortgage calculator by adjusting home price and down payment until the total monthly result matches your target.
What to ask a lender before pre-approval
Bring your own numbers to the conversation:
- What DTI and credit band is this pre-approval built on?
- Is PMI monthly, upfront, or both — and when can it be removed?
- Are taxes and insurance escrowed, and what annual figures did you use?
- Is the quoted rate locked, and for how many days?
- What cash do I need at closing beyond the down payment?
Pre-approval is a useful shopping tool. It is not a promise that a specific house will clear underwriting, and it is not a substitute for reading the Loan Estimate when you have a real offer.
Next step
Open the mortgage calculator, enter a price you are actually considering, your down payment, a current market rate from a source like Freddie Mac’s PMMS, and realistic tax and insurance figures for the area. Compare that total monthly payment with the take-home pay from the paycheck calculator. If the gap is uncomfortable on paper, it will not get more comfortable after you move in.