Why the bank's "approved amount" is usually too high
Most mortgage pre-approval letters use a back-end DTI of 43–45%, well above the 36% that historically correlates with low default rates. A household at the 43% DTI ceiling has very little buffer for the surprise expenses that arrive in year 1 (furnace, water heater, roof repair after a storm). The 28/36 rule is older and more conservative for a reason.
FAQ
When does PMI drop off?
In the US, PMI is required when the loan-to-value (LTV) is above 80%. It can be removed at 78% LTV automatically, or earlier by appraisal. This calculator adds PMI to monthly cost when down payment is below 20%.
Why include commute in the back-end ratio?
Because it eats the same monthly budget as the mortgage. Lenders don't include it, but your bank account does. A 30-mile-each-way commute at 28 mpg costs roughly $350/month in gas alone in 2025, and the 5-year total is the down payment on a car.
Is property tax really 1.2%?
That's the US national average. It ranges from 0.3% in Hawaii to 2.5%+ in New Jersey and Texas. Use your county assessor's published effective rate, not the headline rate (which often excludes exemptions).
Methodology
P&I uses standard amortization on the loan amount = price × (1 − down payment). PMI is estimated at 0.5% of the original loan balance annually when down payment < 20%. Property tax and insurance are simple divisions by 12. HOA is taken as input. Front-end DTI = PITI+ / gross income. Back-end DTI = (PITI+ + other debt + gas cost) / gross income. Commute cost = (2 × miles × 22 work-days/month) / mpg × gas price. Source: CFPB housing counseling guidelines + IRS commuting cost tables.