A lender approves you on money you never see. This runs the same sum on what actually lands in your account, and shows you how far apart the two answers are.
A lender underwrites you on gross income — money that is taxed before it ever reaches you. You pay the mortgage out of take-home. Put both in and watch the two answers separate.
| The lender's test (gross income) | Your test (take-home pay) |
|---|
Not just the loan. This is what actually leaves the account every month.
| Part of the payment | A month |
|---|
Simplified on purpose, and here is exactly how. The lender test uses the common 28% housing and 36% total-debt guidelines — they are guidelines, not law, and every lender differs. Mortgage insurance is estimated at 0.55% of the loan a year and only while the deposit is under 20%; it is dropped entirely at 20% or more. HOA or service charges are not included, and neither is anything a particular loan programme charges up front. What the page does properly is the part most calculators get backwards: it solves for the price from the payment, with property tax and mortgage insurance scaling with the price as they really do.
Because a lender cannot see your tax code, your pension contribution, your health premium or your state's income tax, and gross is the one figure that is the same on every application. It makes underwriting consistent. It also means the approval you are given is measured against money you never actually receive, which is why so many people are approved for a payment they cannot comfortably make.
There is no legal figure, and anyone quoting one as a rule is guessing at your life. What is true is the arithmetic: at 25% of take-home you keep real room for savings and the unexpected; at 35% most of the slack is gone; past 40% a broken boiler becomes a credit-card decision. The box above is set to 30% as a starting point - change it to whatever you can honestly live on, and read the price it gives back.
Because two of the largest parts of the payment depend on the price itself. Property tax is a percentage of the price and mortgage insurance is a percentage of the loan, which is also a percentage of the price. Divide the payment by a monthly loan factor and you get a price that is too high, because tax and insurance were never taken out. The only way to get it right is to solve the equation, which is what this page and the full spreadsheet both do.
No. A pre-approval is a lender's view of what they are willing to risk, worked out from gross income and your credit file. It is not a statement about your grocery bill, your childcare, your commute or what you want your life to look like. Use the pre-approval as a ceiling and the take-home number above as the one you actually shop with.
No - this page answers the monthly question only. Closing costs are a separate lump that leaves the same account in the same week: lender fees, title, appraisal, transfer taxes, prepaid interest and escrow, plus moving. On a typical purchase they run to several per cent of the price on top of the deposit. The full spreadsheet itemises twelve of them with a column for the real figure when your Loan Estimate arrives.
The calculator above is deliberately simple. The full spreadsheet does the whole job — the maximum price solved from your payment, the whole payment for any house, twelve real closing-cost lines, a savings plan for the deposit and six houses compared over five years. It opens in Excel and works just as well in free Google Sheets.
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