01
Name the payment
Not the max a lender would give you. The monthly number you’d be calm about if the car broke down the same month.
Step 01·The method starts here
The number that fits your lifecomes first.
Most people start with “how much house can I afford?” That’s the wrong question. Start with the payment you’d sleep well with — then work backwards to the price.
Work backwards
Payment first. Price second.
02
Subtract the non-mortgage
Taxes, insurance, HOA, PMI. They ride with every mortgage. Budget for the whole payment — not just principal + interest.
03
Work backwards to price
Given your comfort payment, current rates, and your down payment — what price does that actually map to? Usually less than the pre-approval letter says.
Rules of thumb
The 28 / 36 frame.
Lenders use ratios. Use them on yourself first. If you’re already stretched at these numbers, a pre-approval letter won’t fix that.
Front-end ratio
28%
Housing payment (principal, interest, taxes, insurance, HOA) ÷ gross monthly income. Below 28% is the comfort zone.
Back-end ratio
36%
All debt payments combined ÷ gross monthly income. Includes car, student loans, minimum credit card payments — plus the housing payment.
Reserves
3–6×
Months of mortgage payment you can cover from savings after closing. Lenders like 2+. Life likes more.
The payment, unpacked
The mortgage isn’t the payment.
It’s one slice. Ignore the other four and your “affordable” house becomes unaffordable the day you close.
P
Principal
The chunk that reduces your loan balance. Starts small, grows over time.
I
Interest
What the lender charges. Early on, most of your payment is this.
T
Taxes
Property tax, escrowed monthly so the big annual bill doesn’t bite.
I
Insurance
Homeowners insurance — also usually escrowed. Add PMI if under 20% down.
A
Association
HOA / condo fees, if applicable. Easy to forget. Never skip it.
PITI + HOA · or as lenders shorthand it, PITIA
What comes next
Once you know your number, the pillars tell you how to reach it.
Budget gives you a target. The Three Pillars — Income, Credit, and Assets — tell you which levers actually move you toward it.
i.
Income
How lenders measure what you bring in. Salary, self-employment, bonuses, side income — not all of it counts the same way.
ii.
Credit
Your FICO score plus your debt-to-income ratio. One determines your rate. The other determines whether you qualify at all.
iii.
Assets
Down payment, closing costs, and reserves — and the 57+ assistance programs most buyers never hear about.
You are on step 1 of 4 · Budget
You've framed your comfort payment and seen what's inside it.
Next up: Income. Credit. Assets.
Keep the momentum. Step 2 · Three Pillars picks up exactly where this page leaves off — still free, still no credit pull, still no sales call.