Debt Affordability Calculator
Calculate the maximum loan amount you can responsibly afford based on your income, existing debts, and the 36% debt-to-income rule. Useful before applying for a mortgage, car loan, or personal loan.
About this calculator
Lenders use your debt-to-income (DTI) ratio to assess borrowing capacity. The widely accepted back-end DTI limit is 36% of gross monthly income for all debts combined. Your maximum new monthly payment = (Gross Income / 12 × 0.36) − Existing Monthly Debts. That payment is then converted to a maximum loan amount using the amortization formula in reverse: Max Loan = Payment × [(1 − (1+r)^−n) / r], where r = monthly rate (annual rate ÷ 12) and n = loan term in months. This calculator applies this formula so you know your borrowing ceiling before you shop. Staying under the 36% threshold reduces the risk of overextension; many mortgage programs require DTI below 43%, but 36% is the conservative benchmark.
How to use
Annual income: $72,000. Existing monthly debts: $500. Loan term: 60 months. Expected rate: 7%. Step 1 — Max total monthly debt: $72,000 / 12 × 0.36 = $2,160. Step 2 — Available for new payment: $2,160 − $500 = $1,660. Step 3 — Monthly rate r = 7% / 12 = 0.005833. Step 4 — (1+r)^n = (1.005833)^60 ≈ 1.4176. Step 5 — Max loan = $1,660 × [(1.4176 − 1) / (0.005833 × 1.4176)] = $1,660 × 71.586 ≈ $118,833. You could afford a loan of up to approximately $118,800 at these terms.
Frequently asked questions
What is a good debt-to-income ratio when applying for a mortgage?
Most conventional mortgage lenders want a back-end DTI (all monthly debts divided by gross monthly income) of 43% or below, but the sweet spot for approval with the best rates is 36% or under. FHA loans may allow DTI up to 50% with compensating factors. A DTI above 43% signals to lenders that a large portion of your income is already committed to debt, increasing default risk. Reducing existing debts before applying — even paying off a car loan — can meaningfully lower your DTI and improve both approval odds and interest rate offers.
How do existing debts affect the maximum loan I can afford?
Each dollar of existing monthly debt (car payments, student loans, credit card minimums) reduces the payment budget available for a new loan dollar-for-dollar. Under the 36% rule, if your gross monthly income is $6,000, your total debt cap is $2,160. If you already pay $600/month on existing debts, you have only $1,560 left for a new payment. That $600 reduction can lower your maximum affordable loan by $30,000–$60,000 depending on the rate and term. Paying off small debts before applying for a large loan can significantly increase your borrowing capacity.
Why do lenders use gross income instead of net income for affordability calculations?
Lenders use gross (pre-tax) income because it is a standardized, verifiable figure consistent across borrowers regardless of tax filing status, deductions, or retirement contributions. Net income varies widely based on individual choices, making cross-borrower comparisons unreliable. However, you should plan based on your net income when deciding what you can actually afford day-to-day, since your mortgage payment comes from your take-home pay. A useful rule of thumb: your total housing payment should not exceed 25–28% of your net monthly income as a practical comfort check, separate from lender DTI requirements.