The answer most lenders give you is a number. The answer you actually need is a monthly payment you can live with for the next 30 years without feeling squeezed every time your car needs new tires.
How much house you can afford depends on your income, your debts, your down payment, and one number most buyers never think about until it's too late: your debt-to-income ratio. Get that number right, and everything else falls into place. Get it wrong, and you'll be house-poor before your first property tax bill arrives.
I'm Ben Eddy with Colt Lending, and I walk every buyer through this math before we even look at rates. Here's how to figure out what you can actually afford, not just what a lender will approve you for.
What Lenders Look At (And What You Should Look At Instead)
Lenders will approve you for more than you should spend. That's not a criticism of lenders. It's just how the math works. Their job is to assess risk based on your ability to repay. Your job is to assess whether you can repay and still have a life.
The primary tool lenders use is your debt-to-income ratio, or DTI. This is the percentage of your gross monthly income (before taxes) that goes toward debt payments, including your proposed mortgage.
Here's where the disconnect happens: lenders will approve conventional loans at DTI ratios up to 45-50%. FHA can go as high as 57%. VA loans can stretch to 60% in some cases.
But just because you qualify at 50% DTI doesn't mean you should buy at 50% DTI. At that level, half your gross income is going to debt. After taxes, you're left with very little room for savings, emergencies, or the things that make your life enjoyable.
The guideline I use with my clients: aim for a total DTI of 36% or less. That's the 28/36 rule financial advisors have recommended for decades, and it still holds up.
The 28/36 Rule: Your Starting Point
The 28/36 rule says two things:
Your monthly housing costs (mortgage payment, property taxes, homeowners insurance, and any mortgage insurance or HOA fees) should not exceed 28% of your gross monthly income.
Your total monthly debt payments (housing costs plus car loans, student loans, credit card minimums, and any other recurring debt) should not exceed 36% of your gross monthly income.
Here's what that looks like at different income levels, assuming a 30-year fixed-rate mortgage at approximately 6.5%:
$60,000 annual income ($5,000/month): Maximum housing payment of $1,400/month. Maximum total debt of $1,800/month. Approximate home price: $220,000 to $260,000 depending on down payment and taxes.
$80,000 annual income ($6,667/month): Maximum housing payment of $1,867/month. Maximum total debt of $2,400/month. Approximate home price: $290,000 to $340,000.
$100,000 annual income ($8,333/month): Maximum housing payment of $2,333/month. Maximum total debt of $3,000/month. Approximate home price: $360,000 to $420,000.
$120,000 annual income ($10,000/month): Maximum housing payment of $2,800/month. Maximum total debt of $3,600/month. Approximate home price: $430,000 to $510,000.
$150,000 annual income ($12,500/month): Maximum housing payment of $3,500/month. Maximum total debt of $4,500/month. Approximate home price: $540,000 to $640,000.
These are estimates. Your actual buying power depends on your down payment amount, current interest rates, property tax rates in your area, and existing debt payments.
The Numbers Most Buyers Forget
The purchase price is just the starting point. Your actual monthly payment includes several components that many first-time homebuyer budgets underestimate:
Principal and interest. This is the base loan payment that amortizes over your loan term. On a $350,000 loan at 6.5% over 30 years, that's roughly $2,212 per month.
Property taxes. In Texas, this is significant. Tarrant County (Fort Worth area) runs roughly 2.0-2.2% of assessed value. Williamson County (Georgetown / Leander area) runs 1.9-2.2%. On a $400,000 home in Texas, property taxes add $633 to $733 per month to your payment.
Homeowners insurance. Texas premiums have been climbing due to severe weather events. Budget $2,500 to $4,000+ per year, or roughly $208 to $333 per month, depending on the property, age, roof type, and location.
Mortgage insurance. If you put less than 20% down on a conventional loan, you'll pay PMI. On FHA loans, you pay MIP for the life of the loan (unless you refinance later). PMI on conventional loans typically ranges from $80 to $200+ per month depending on your credit score and loan amount.
HOA fees. Many Texas master-planned communities have HOA dues ranging from $50 to $300+ per month. These are part of your DTI calculation.
When you add all of these together, a $400,000 home in Texas with 5% down, a 6.5% rate, and average taxes and insurance could carry a total monthly payment of $3,200 to $3,600. That's very different from the $2,500 principal and interest number that looks manageable on a calculator.
How Your Loan Type Affects Affordability
The loan program you choose directly impacts how much house you can afford. Each program has different down payment requirements, mortgage insurance costs, and DTI limits.
Conventional (3-5% down): DTI up to 45-50% with strong compensating factors like high credit scores or significant cash reserves. PMI required below 20% down but can be removed once you reach 20% equity. Best for buyers with 620+ credit scores who want the flexibility to drop mortgage insurance later.
FHA (3.5% down): DTI up to 57% with compensating factors. Lower credit score requirements (down to 500 with the right lender). But MIP stays for the life of the loan if you put less than 10% down, which adds to your long-term cost. On a $350,000 loan, the 1.75% upfront MIP adds $6,125 to your loan balance, and the annual 0.55% MIP adds roughly $160/month.
VA (0% down): DTI guidelines up to 41%, though many lenders will go to 60% with residual income approval. No down payment required. No monthly mortgage insurance. Typically the lowest rates available. For eligible veterans, VA is almost always the most affordable option.
USDA (0% down): DTI typically capped at 41-46%. Income limits apply. Property must be in an eligible rural or suburban area. Some Texas communities qualify that buyers don't expect. See USDA loans if you're shopping outside major metros.
The right loan type isn't always the one with the lowest down payment. Sometimes a conventional loan with 5% down and removable PMI costs less over time than an FHA loan with 3.5% down and permanent MIP.
I run every scenario for every buyer so you can compare the real monthly costs and total costs over time, not just the down payment amount.
The Texas Factor: Property Taxes Change the Math
If you're relocating to Texas from a state with lower property taxes, this is the section that matters most.
Texas has no state income tax. That's the upside. The trade-off is property taxes that are among the highest in the country. In the DFW Metroplex, effective rates range from 2.0% to 2.5%+ depending on the county, city, and any special taxing districts like MUDs (Municipal Utility Districts).
A $400,000 home with a 2.2% tax rate generates $8,800 per year in property taxes. That's $733 per month added to your mortgage payment, paid through escrow.
Compare that to a state like California, where effective property tax rates average around 0.7%. The same home in California would generate roughly $2,800 in annual property taxes, or $233 per month. That's a $500 per month difference on the same home price.
This is why I always include property tax estimates in the pre-qualification vs. pre-approval conversation. The "sticker price" of a Texas home might look affordable compared to where you're moving from, but the total monthly payment can surprise you if you're not accounting for taxes.
The good news: Texas homestead exemptions have improved significantly. The school district exemption rose to $140,000 in 2026 under SB 4, and the 10% annual appraisal cap limits how fast your assessed value can increase year over year.
What "Pre-Qualified" Actually Means
Getting pre-qualified tells you the maximum amount a lender is willing to lend you based on your income, credit, debts, and assets. It does not tell you what you should spend.
Think of pre-qualification as the ceiling, not the target. If a lender pre-qualifies you for $450,000, that's the upper boundary. It doesn't account for your savings goals, your lifestyle, your plans for a growing family, or the fact that your 15-year-old car might need replacing soon.
The exercise I walk every buyer through: start with your take-home pay (after taxes, not before). Subtract your non-negotiable monthly expenses. What's left is the pool from which your housing payment comes, along with your savings contributions. If the housing payment a $450,000 home requires leaves you with nothing for savings or flexibility, you're buying too much house.
A comfortable home purchase should leave breathing room. Not just enough to make the payment, but enough to handle life.
Want to know exactly how much house you can afford? I'm Ben Eddy with Colt Lending. I run every loan scenario, include Texas property taxes and insurance in the real numbers, and show you a monthly payment you can actually live with. Schedule a call and let's run your numbers, or apply online when you're ready.
