When a lender tells you what you qualify for, that number comes out of two separate tests. You get the answer. You almost never get which test produced it, and that is the piece that determines what you should do next.
The two rules
The front-end ratio looks at housing alone. Principal, interest, property taxes, insurance, HOA, and mortgage insurance if you are under 20% down. Conventionally that total should stay under about 28% of gross monthly income.
The back-end ratio looks at housing plus every other monthly debt payment — car, student loans, credit card minimums. That total should stay under about 36%.
Your ceiling is whichever rule stops you first. And which one stops you first changes the entire strategy.
Why it matters so much
Say you earn $135,000 and carry $780 a month in other debt payments.
If the front-end rule is binding, your other debt is irrelevant to your ceiling. You could clear the car loan tomorrow and buy exactly the same house. The levers that work are a bigger down payment, a lower rate, or more income. Paying down debt will improve your life; it will not raise your ceiling by a dollar.
If the back-end rule is binding, the reverse is true. Your income could support more house, and your existing debt is what is standing in the way. Every $100 a month of payments you retire buys back a meaningful chunk of purchase price — roughly $11,000 to $14,000 of it depending on the mortgage rate (about $12,200 at 6.55%, more when rates are lower, since each dollar of payment carries further). That is a genuinely different plan, and for many people the fastest route to a better house is a few months of aggressive debt payoff rather than a few more years of saving.
Same income, same debt, same ceiling. Opposite next move. Nobody tells you which one you are in.
The number you were quoted is not a target
One more thing worth saying, because the industry has no incentive to say it.
The number a lender approves you for is the maximum their risk model tolerates, computed on gross income — before tax, before retirement contributions, before the things that actually leave your account. It describes the edge of what is permitted, not what is comfortable. Plenty of people buy at their approval number and spend the next decade house-rich and cash-poor, unable to fund the buffer we wrote about elsewhere on this site.
Treat the ceiling as a boundary you have located, not a goal you are aiming at.
Find your ceiling and what sets it
The calculator below computes both limits separately, tells you which one is binding, breaks the monthly payment into its parts, and — if your other debt is what is holding you back — quantifies how much purchase price each $100 a month of retired debt buys back.
Questions
What are the 28/36 mortgage rules?
The front-end rule keeps total housing cost, including principal, interest, taxes, insurance, HOA and PMI, under about 28% of gross monthly income. The back-end rule keeps housing plus every other monthly debt payment under about 36%.
Will paying off my car let me buy a more expensive house?
Only if the back-end rule is what is capping you. If your income is the binding constraint, retiring other debt does not raise your ceiling at all. Which rule binds is the thing to establish first.
How much house does paying off debt buy me?
When the back-end rule is binding, roughly $11,000 to $14,000 of purchase price per $100 a month of debt retired, depending on the mortgage rate. Lower rates carry each dollar of payment further.
The figures behind this
Every number above is computed, not asserted. These are checkable, and the inputs are published so you can reproduce them:
- A household earning $135,000 with $1,600 a month of other debt payments and $40,000 down at 6.55% is capped by the back-end rule, not by income.
- Their purchase ceiling is $332,743, below the $418,245 their income alone would allow.
- Each $100 a month of retired debt buys back $12,215 of purchase price at a 6.55% rate.
Machine-readable: claims/what-caps-what-you-can-afford.json