Montana mortgage affordability calculator

Two ratios decide the answer

Underwriting does not ask what you can afford. It asks what share of your gross income the payments would take.

The front-end ratio compares the housing payment alone to gross monthly income, and the conventional guideline is 28%. The back-end ratio compares all recurring debt, housing included, to the same income, and the conventional guideline is 36%.

A lender applies both and the tighter one governs. This tool computes both and uses the lower, which is why adding a car loan can reduce the price you support even though your income has not changed.

Note the word gross. Every ratio here runs on income before tax, not the amount that lands in your account. If you want to see the size of that gap, the take-home pay tools work in the other direction.

What underwriting counts as income and as debt

Both sides of the ratio are narrower than a household budget.

On the income side a lender uses what can be documented and is expected to continue. Base salary is straightforward. Bonus, commission, overtime and self-employment income are usually averaged across two years of history, and self-employment is measured on net profit after expenses rather than on what the business took in. A raise already showing on your pay stubs counts; one you have been promised does not. Certain non-taxable income can be treated as worth more than its face value, because the comparison is being made against gross figures.

On the debt side, the other monthly debt field means what a lender would pull from your credit report: minimum payments on cards, the car payment, student loan payments, personal loans and court-ordered support. Balances do not matter, payments do. What does not count is most of what actually leaves your account, including utilities, phone, groceries, car insurance, childcare, medical costs, retirement contributions and the tax withheld from your pay. That gap is the whole reason approval and affordability are different questions.

The worked example, at the default inputs

The calculator opens on $95,000 of household income, $450 of other monthly debt payments, $60,000 saved, a 6.5% rate and a 30-year term.

$95,000 a year is $7,917 a month gross.

• Back-end: 36% of $7,917 is $2,850, minus the $450 of existing debt, leaving $2,400 for housing.
• Front-end: 28% of $7,917 is $2,217.

The front-end ratio binds, so the housing budget is $2,217 a month. At 6.5% over 30 years that payment supports about $351,000 of mortgage, and with the $60,000 down payment that is a home price near $411,000.

Now choose Texas. Property tax at the state effective rate of 1.71% is charged on the price, so it has to be solved together with the price rather than subtracted afterwards. Doing that honestly drops the answer to roughly $335,000, with about $478 a month going to tax. The same household, the same income and the same savings buy $76,000 less house purely because of where they buy. Published effective rates are on our state pages.

A second example: rate, term and other debt

The same household, changing one field at a time, with no state chosen.

Drop the rate from 6.5% to 5.5% and the housing budget does not move at all, because the budget comes from income rather than from pricing. What moves is how much loan that budget buys: the price supported rises from about $411,000 to about $450,000.

Change the term from 30 years to 15 instead and it falls to about $315,000. The payment the household can carry is unchanged. The loan that payment supports over 180 months is simply far smaller than the one it supports over 360, which is the same lever the mortgage payment calculator shows from the other end.

Raise the other monthly debt from $450 to $1,000 and the binding ratio switches. The back-end now allows $1,850 against the front-end $2,217, so the back-end governs and the price supported falls to about $353,000. There is a clean line underneath that. With the conventional 28 and 36 figures, the front-end ratio binds whenever other debt is below 8% of gross monthly income, which on $95,000 a year is about $633 a month. Above that point every extra dollar of debt payment comes straight out of the housing budget.

Why does property tax change the answer so much?

Because it scales with the price, so it competes with the mortgage for the same fixed budget.

A naive calculator subtracts a flat tax estimate from the housing budget and solves for price. That understates the effect, because a larger price brings a larger tax bill, which shrinks the payment available for the loan, which lowers the price again. Solving the two together is the only way to avoid overstating what a household can carry, and in high-tax states the difference runs to tens of thousands of dollars.

The same logic applies to insurance and HOA dues, which this tool does not model at all. Both come out of the same 28%.

Approved and affordable are different numbers

This tool produces the first. It is a useful ceiling and a bad target.

The ratios take no account of childcare, medical costs, retirement contributions, an unstable income, or the fact that a new house tends to generate its own expenses in the first two years. A household at exactly 36% back-end has committed more than a third of its gross income to debt before it has bought any food.

Two habits keep the gap visible. First, run the resulting payment through the mortgage payment calculator with your real insurance quote and the county tax rate, not the state average. Second, live at the new payment for three months before you commit, moving the difference between your current housing cost and the proposed one into savings. If that is uncomfortable in a normal month, it will not improve with a mortgage attached.

Common mistakes with this calculator

• Treating the ceiling as a target. The figure is what conventional underwriting will stretch to, not what leaves room for childcare, medical bills or a thin year. Approval and comfort are separate questions, and only the first one is answered here.
• Typing take-home pay into the income field. Both ratios are measured against gross income, before tax. Entering net pay understates the answer by roughly the size of your withholding, and entering gross while quietly budgeting against net produces the opposite error.
• Leaving the state blank. With no state selected the tool applies no property tax at all, so the price shown is the most optimistic number it can produce. Choosing Texas at the default inputs takes it from about $411,000 down to about $335,000.
• Treating property tax as a fixed monthly cost. It scales with the price, so a larger house brings a larger tax bill that competes for the same housing budget. Subtracting a flat estimate first, rather than solving price and tax together, overstates what a household can carry.
• Entering debt balances rather than debt payments. Underwriting counts the minimum monthly payment showing on your credit report, so a car loan belongs in that field as its $450 payment, not as the balance sitting behind it.
• Forgetting insurance, HOA dues and mortgage insurance. None of the three are modelled here, and all three come out of the same 28%. A condominium buyer, or anyone putting less than 20% down, will be paying at least one of them from the first month.

Who this tool is wrong for

The 28 and 36 figures are a conventional benchmark, and several kinds of borrower are not underwritten against them.

• Self-employed and commission-paid households. The income figure a lender uses is an average of documented history, often well below what this year is producing.
• VA borrowers. VA underwriting weighs residual income, meaning what is left after tax, debts and housing, alongside the ratio. A household can pass one test and fail the other.
• Jumbo borrowers. Loans above the conforming limit carry their own overlays, usually stricter on reserves and often on the ratio itself.
• Condominium buyers. A lender counts association dues inside the housing ratio. This tool does not model them at all, so it overstates what a condo buyer supports by the size of the dues.
• Households carrying a large obligation that is not debt. Childcare and ongoing medical costs appear in no ratio and can be the size of a second mortgage payment.

What the calculator leaves out

• Home insurance. Not modelled, and it comes out of the same housing budget.
• HOA or condo dues. The same.
• Private mortgage insurance. With less than 20% down it is very likely, and it is not deducted here, so the price shown is optimistic in exactly the cases where budgets are tightest.
• County-level property tax. The tool uses a state effective rate. Your county may be well above or below it.
• Your actual credit file. Score, reserves, employment history and loan type all move the ratios a lender is willing to use.

When no state is chosen, no property tax is applied at all, and the price shown is the most optimistic figure the tool can produce. That is deliberate: we would rather show the arithmetic with an obvious gap than fill it with an invented number. See our methodology for how we treat missing data.

What raises the number honestly?

• Clear the smallest fixed loan payment, which relieves the back-end ratio
• Add to the down payment, which raises the price dollar for dollar
• Improve the credit score before applying, which changes the rate you are quoted
• Document all stable income, including a second job with a long enough history
• Consider a longer term, accepting the higher total interest that comes with it
• Compare counties inside the same metro area for the property tax difference

What does not raise it honestly: stretching the term to 40 years to make an unaffordable house look affordable, taking a variable rate on the assumption that rates will fall, or buying at the very top of the range on the strength of a raise you have not received. Consumer debt is often the fastest lever, and the debt payoff tools are the place to start on that.

Where lenders go beyond 36%

They frequently do. Automated underwriting will approve back-end ratios well above the conventional guideline where compensating factors exist: a large down payment, substantial reserves, a high credit score, or a government-backed programme with its own criteria. FHA lending in particular is routinely written above the conventional guideline.

That is a fact about underwriting, not an endorsement. A ratio a lender will accept is the maximum risk the lender is comfortable with, given that the loan is secured on the house. Your exposure is not the same as theirs.

This page describes general underwriting conventions. It is not a lending decision and not personalised advice. See the disclaimer.