The Rule Banks Use — Front-End and Back-End DTI
DTI stands for Debt-to-Income ratio. Lenders use two versions:
Front-end DTI (housing only): Your total monthly housing costs — principal, interest, property taxes, and insurance — divided by gross monthly income. Most conventional loans require this to stay at or below 28%. FHA loans allow up to 31%.
Back-end DTI (all monthly debts): All monthly minimum debt payments — housing, student loans, car loans, credit card minimums — divided by gross monthly income. Most conventional loans allow up to 43% maximum. Some programs allow up to 50% with compensating factors like a large down payment or excellent credit score.
| Calculation — $75,000 Salary | Amount |
|---|---|
| Gross monthly income | $6,250 |
| 28% front-end maximum (housing) | $1,750/month |
| 43% back-end maximum (all debts) | $2,688/month |
| If $500/month in other debts, housing room is | $2,188/month |
The bank approves what it approves. That number is the maximum — not the recommendation. The bank's interest is in confirming you can repay the loan, not in optimizing your financial wellbeing or retirement savings rate.
What $1,750 Per Month Actually Buys at 7% in 2026
Working backwards from the front-end DTI ceiling at a $75,000 salary, with the maximum PITI (principal, interest, taxes, insurance) at $1,750 per month. The table uses a 7% rate as a round example. Freddie Mac's weekly average for a 30-year fixed loan was 7.40% on October 15, 2026, so check today's rate before you rely on these figures:
Home prices in many US metros sit well above $249,000. At this salary level, buying a typical home in those markets requires either a larger down payment, a dual income, or a salary higher than $75,000 in most markets.
The 28% Rule vs Reality — A More Honest Framework
The 28% front-end ratio is the bank's rule for their risk — not a recommendation for your financial life. The problem with 28% of gross is that it ignores taxes. At $75,000 gross, the take-home pay is approximately $61,590 in a no-income-tax state under 2026 federal rules and FICA, which is about $5,130 per month net.
| Housing Budget Rule | Monthly Amount |
|---|---|
| 28% of $75K gross (bank maximum) | $1,750 |
| 28% of $5,133 net (actual take-home) | $1,437 |
| 25% of $5,133 net (planner recommendation) | $1,283 |
The three numbers to know: what the bank will lend (their ceiling), what feels comfortable monthly (your cash flow test), and what lets you still save 10 to 15 percent of income after housing (your real affordability). Number three is the right target.
The Down Payment Reality Check
A 20% down payment on a $350,000 home requires $70,000 in cash before closing costs. Most first-time buyers use lower down payment programs: FHA loans allow 3.5% down with a credit score of 580 or higher, and conventional loans allow 3% down in some programs (such as Fannie Mae HomeReady).
The trade-off: less than 20% down requires PMI (private mortgage insurance), typically $50 to $200 per month until 20% equity is reached. On a $315,000 loan this is approximately $131 per month — money that goes entirely to the insurance company and builds no equity.
At a $75,000 salary, saving $1,000 per month specifically for a down payment produces: $50,000 in 4.2 years, and $70,000 in 5.8 years. This timeline is why many first-time buyers use lower down payment programs rather than wait — in some markets the home appreciates faster than the savings accumulate, making the waiting strategy counterproductive.
The Costs Pre-Approval Ignores
Pre-approval tests ratios on gross income. It does not test what is left after the house. A household earning $100,000 gross takes home roughly $72,000 to $78,000 after federal tax, state tax and FICA, depending on state and filing status. A payment that is 36% of gross income can be close to 50% of take-home pay.
Three costs sit outside the bank's math. Maintenance: a common rule of thumb is 1% of the home's value per year, which is about $292 per month on a $350,000 home. Closing costs: typically 2% to 5% of the loan amount, or $6,300 to $15,750 on a $315,000 loan, due at the closing table. Moving and setup: a local move can run $1,000 to $5,000, and most buyers spend more on furnishings, appliances and early repairs.
Arriving at closing with exactly enough for the down payment and closing costs, and no emergency fund left, is the most common source of first-year stress. Keep a cash reserve on top of the down payment.
The interest rate moves your ceiling more than almost any other variable. A $1,800 monthly principal and interest payment supports about a $377,000 loan at 4% and about $271,000 at 7%. Same payment, $106,000 less house.
Calculate your exact monthly mortgage payment at any rate, loan amount, and term:
Mortgage Calculator →Disclaimer: This article is for educational purposes only and does not constitute financial advice. Home affordability depends on many individual factors. Consult a qualified mortgage professional for your situation.