It is the first question almost every homebuyer asks, and it is the right one to start with. Before you tour homes, before you fall in love with a floor plan, and before you start scrolling listings, you need a clear and honest number. 

The problem is that “how much house can I afford” has two answers:

• What a lender will approve you for, and
• What makes sense for your financial life

Those numbers are not always the same. 

At Perry Johnson Mortgage Company, we think your time and money matter too much to get this wrong. So, let’s work together. 

The Number Lenders Use: Debt-to-Income Ratio 

When a lender evaluates your application, the primary measure they use is your debt-to-income ratio (DTI). This is the percentage of your gross monthly income (before taxes) that goes toward debt payments, including your future mortgage. 

There are two versions of DTI that lenders look at: 

• Front-End DTI: Covers only your housing costs, mortgage principal, interest, property taxes, homeowner insurance, and HOA dues if applicable. Most lenders prefer this to stay at or below 28% of your gross monthly income. 

• Back-End DTI: Includes all your monthly debt obligations. Your expected housing costs and other debt such as car payments, student loans, credit card minimum payments, or any other recurring debt, or just your housing costs if you have no other debt.  

A Real-World Example 

If your household brings in $7,000 per month before taxes, your baseline limits look like this: 

• 28% front-end limit = $1,960 maximum housing payment 

• 43% back-end limit = $3,010 maximum total debt payments 

If you already have $600 in monthly debt payments (car, student loans, etc.), your available room for a housing payment drops to $2,410 on the back end. However, the front-end cap of $1,960 may still be your binding constraint. 

The Number That Matters for Your Life: The 25% Rule 

Lender approval limits tell you the maximum they are willing to risk. They do not tell you what leaves you financially comfortable and able to save, take vacations, handle emergencies, and build wealth over time. 

A widely used personal finance guideline is to keep your total housing costs at or below 25% of your monthly income. Financial planners generally apply this in one of two ways: 

• Based on gross income – pay before taxes and deductions. This is the more common starting point and a solid, sustainable baseline for most buyers that still leaves meaningful breathing room. 

• Based on net take-home pay – what actually lands in your bank account each month. This approach is more conservative and gives you an even larger financial cushion. 

At a $7,000 gross monthly income, that means keeping your total housing payment at or below $1,750 per month. Depending on your interest rate, down payment, and local property taxes, that corresponds to a purchase price in the $250,000 to $300,000 range for many buyers in 2026. 

Try It Yourself: Use our PJMC Mortgage Calculator to run your own numbers and see how purchase price, down payment, and interest rate interact in real time. 

What Your Monthly Payment Actually Includes 

A common mistake buyers make is looking only at principal and interest when budgeting their housing payment. Your full monthly housing cost (often abbreviated as PITI) has several moving parts: 

• Principal and Interest (P&I): The base loan repayment. This is what a basic mortgage calculator typically shows. 

• Property Taxes: Typically paid monthly through escrow and disbursed annually to your local government, though some buyers choose to pay directly. Tax rates vary significantly depending on the state, county, and city. 

• Homeowner’s Insurance: Required by all lenders, typically paid monthly through escrow, though some buyers choose to pay directly. Costs vary based on location, home value, and coverage level. 

• Private Mortgage Insurance (PMI): Required on conventional loans when you put down less than 20%. Typically runs 0.5% to 1.5% of the loan amount annually. On an FHA loan, this is called MIP and works a bit differently) 

• HOA Dues: If the property is in a planned community or condo association, monthly dues are part of your true housing cost. 

 The Takeaway: When all of these are added together, buyers are often surprised to find their actual monthly payment is $200 to $400 more than the P&I figure they calculated. Always budget for the full payment, not just the loan repayment. 

How Your Down Payment Changes Everything 

The size of your down payment affects your loan amount, your monthly payment, and whether you pay mortgage insurance. 

Here is how common down payment amounts play out on a $300,000 home at a 7% interest rate: 

Down Payment	Loan Amount	Est. P&I Payment	PMI Required?
3% ($9,000)	$291,000	$1,937	Yes
5% ($15,000)	$285,000	$1,897	Yes
10% ($30,000)	$270,000	$1,797	Yes
20% ($60,000)	$240,000	$1,597	No

A larger down payment lowers your monthly obligation and eliminates PMI once you hit 20%, but it also requires more cash at closing. The best choice depends on your savings, your timeline, and what down payment assistance programs may be available to you. 

If you are a first-time buyer, you may qualify for assistance programs that significantly reduce how much cash you need upfront. Our loan officers work with buyers across 26 states and know the exact programs available in your area. 

The Factors That Shape Your Interest Rate 

Your monthly payment does not just depend on how much you borrow. Your interest rate determines how much of each payment goes to interest versus principal, and even a small rate difference adds over 30 years. 

The factors that most influence your rate include: 

• Credit Score: The single biggest driver of your rate. Borrowers with scores above 740 typically qualify for the best pricing. Buyers in the 620 to 680 range can still get approved, but at a higher rate. Improving your score before applying is one of the most valuable things you can do. 

• Down Payment: More equity at the start signals lower risk to lenders and typically produces a better rate. 

• Loan Type: VA loans typically carry the lowest rates for eligible borrowers, generally 0.25% to 0.50% below conventional, plus no required mortgage insurance, which adds up significantly over time. Conventional, FHA, and USDA each have their own pricing dynamics and trade-offs worth understanding based on your situation. 

• Loan Term: A 15-year mortgage carries a lower interest rate than a 30-year, though the monthly payment is higher because the payoff period is compressed. 

• Market Conditions: Rates fluctuate daily with economic data, inflation, and Federal Reserve policy. Timing the market perfectly is not realistic but locking your rate at the right moment during your purchase process matters. 

Why work with a broker? As a mortgage broker, Perry Johnson Mortgage Company shops your loan across a network of wholesale lenders, not just one institution’s rate sheet. That means more options and more competitive pricing than you would typically find going to a single lender directly. 

A Realistic Affordability Snapshot 

To tie all this together, here is what affordability looks like across three common income levels in 2026, using an estimated 7% interest rate, 5% down payment, and estimated average taxes and insurance: 

Gross Monthly Income	Conservative Budget (25%)	Lender Max (43% DTI) *	Approx. Purchase Price Range
$5,000	$1,250 / mo.	$2,150 / mo.	$165,000 to $220,000
$7,000	$1,750 / mo.	$3,010 / mo.	$235,000 to $310,000
$10,000	$2,500 / mo.	$4,300 / mo.	$340,000 to $450,000

*Assume no other monthly debt obligations. Existing debts will lower this maximum. 

Keep in mind these are estimates. Your actual range depends on your specific debts, credit score, down payment, location, and which loan program fits your situation. 

Get a Real Number in Minutes 

Rules of thumb are a useful starting point, but a mortgage pre-approval gives you a real, verified number based on your actual income, debts, and credit profile. It also puts you in a much stronger negotiating position when you find a home and are ready to make an offer. 

At Perry Johnson Mortgage Company, getting your free pre-approval letter is straightforward and does not commit you to anything. Our loan officers take the time to understand your full financial picture, explain your options clearly, and match you with the loan structure that fits your lifestyle, not just the one that closes fastest. 

Ready to take the next step? 

• Get Your Free Pre-Approval Letter: Find out exactly what you qualify for in minutes. 

• Use Our Free Mortgage Calculator: Run your own custom numbers instantly. 

• Call Us Today at 1-800-800-0450. Speak directly with an expert loan officer to get answers to your questions. 

Your time and money matter. Let us not waste either.