The 28/36 Rule
The traditional affordability guideline is the 28/36 rule: housing costs (principal, interest, property taxes, and insurance -- PITI) should not exceed 28% of gross monthly income; total debt payments should not exceed 36%. On $8,333 gross monthly income ($100,000/year), the 28% housing limit is $2,333 per month.
Lender Qualification Limits
Most conventional lenders allow a back-end DTI up to 43% to 45%, and Fannie Mae's automated underwriting may approve up to 50% for strong borrowers. Being approved for more than you planned to spend is not a reason to spend more -- lender limits are the maximum they will lend, not a recommendation.
Down Payment and Cash Reserves
Affordability is not just about the monthly payment. You also need funds for: a down payment (3% to 20% of purchase price), closing costs (2% to 5% of loan amount), moving expenses, and post-closing cash reserves. Most lenders want to see 2 to 6 months of housing payments in savings after closing.
The True Monthly Cost
Add these to your principal and interest estimate: property taxes (divide annual bill by 12), homeowners insurance, HOA fees if applicable, and PMI if your down payment is less than 20%. The sum of all these items is your true total monthly housing cost.