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What price does the income actually support? Enter income, existing debts, and loan terms to see the purchase the numbers reach.
Affordability is set by two ratios rather than one. The front-end ratio is housing cost divided by gross monthly income. The back-end ratio, which usually binds first, is total monthly debt obligations divided by gross monthly income. A lender caps each, and the lower of the two resulting prices is the answer.
On an investment property the calculation changes shape, because the property generates income itself. Lenders commonly credit a portion of projected rent rather than all of it, and the haircut covers vacancy and management. The alternative route is a DSCR loan, which removes personal income from the file and qualifies the property on its own coverage ratio instead.
The back-end ratio is where car payments and student loans set the price. At a 7% rate over 30 years, every $100 of monthly obligation removes roughly $15,000 of borrowing capacity, before any change to the down payment.
Property taxes and insurance sit inside the housing ratio, so identical income buys a smaller property in a high-tax jurisdiction. The difference between a 1% and a 2% effective tax rate on a $425,000 property is about $354 a month, which is roughly $53,000 of purchasing power.
A ratio ceiling is a lender maximum, not a target. Qualifying at the top of the range leaves no distance between the payment and the first vacancy, and on a rental the vacancy is the event that arrives.
Reserves are a separate hurdle from the ratios. Lenders commonly require several months of payments still held after closing on investment property, so the cash required exceeds down payment plus closing costs.
A portion rather than all of it, with the discount covering vacancy and management. The exact treatment depends on the program and on whether the rent is documented by a lease or estimated by an appraiser.
Lower ceilings than owner-occupied lending in most programs, with the specific limit set by the lender. The back-end ratio, counting every monthly obligation, is the one that usually determines the maximum price.
A DSCR loan is built for that case. It qualifies on the property coverage ratio rather than borrower income, which shifts the entire underwriting question onto whether the rent covers the payment.
Closing costs plus lender-required reserves. On a $425,000 purchase at 20% down, that is $85,000 plus roughly $12,000 of closing costs, plus several months of payments that have to remain in the account after closing.
Documented income from properties already on a tax return generally counts, subject to the same haircut. Projected income on a property not yet owned is treated more conservatively, which is part of why the first rental is harder to finance than the third.
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