The mortgage you can get approved for depends on three main factors: your income, your existing debts, and your credit score. Most lenders use a formula called the debt-to-income ratio (DTI) to determine your maximum loan amount, and the result varies significantly depending on the loan type you pursue. A household earning $80,000 a year, for example, might qualify for anywhere from $250,000 to over $400,000 depending on their debts, down payment, and the interest rate they lock in.
How Lenders Calculate Your Maximum Payment
Lenders don’t look at the total price of a home. They look at whether you can afford the monthly payment, which includes four components known as PITI: principal, interest, taxes, and insurance. Principal and interest go toward repaying the loan itself. Property taxes and homeowner’s insurance are often collected monthly into an escrow account and paid on your behalf when they come due. If you put less than 20% down on a conventional loan, you’ll also pay private mortgage insurance (PMI), which gets added to that monthly figure.
The lender adds up your full PITI payment, then compares it to your gross monthly income (your pay before taxes). That ratio is your “front-end” DTI. They also calculate a “back-end” DTI, which includes PITI plus all your other monthly debt payments: car loans, student loans, credit card minimums, and personal loans. The back-end ratio is the one that most often determines your ceiling.
DTI Limits by Loan Type
For conventional loans run through Fannie Mae’s automated underwriting system (Desktop Underwriter), the maximum allowable DTI ratio is 50%. That means your total monthly debts, including your new mortgage payment, can equal up to half your gross monthly income. If your loan is manually underwritten instead, the standard cap drops to 36%, though borrowers with strong credit scores and cash reserves can push that to 45%.
FHA loans, which are backed by the Federal Housing Administration, generally allow DTI ratios up to 43%, though some lenders approve borrowers up to 50% with compensating factors like a larger down payment or significant savings. VA loans, available to eligible military members and veterans, have no official DTI cap set by the VA itself, but most lenders apply their own limit, typically around 41% to 50%.
To put this in dollar terms: if your household earns $7,000 per month before taxes and you have $500 in existing monthly debt payments, a 43% DTI cap would allow total debts of $3,010. Subtract the $500 you already owe, and you could qualify for a mortgage payment up to $2,510 per month. At a 7% interest rate on a 30-year loan, that payment (before taxes and insurance) supports roughly a $375,000 loan amount.
Credit Score Thresholds
Your credit score affects both whether you get approved and what interest rate you’re offered, which in turn changes how much house you can afford. The minimum credit score for most conventional mortgages is around 620. FHA loans are more flexible, with some lenders accepting scores as low as 580 for a 3.5% down payment, or even 500 if you put 10% down. VA and USDA loans don’t set official minimums, but most lenders require at least 620.
A higher credit score does more than open the door. It lowers your interest rate, which directly increases your purchasing power. The difference between a 680 score and a 760 score can mean a quarter to half a percentage point on your rate. On a $300,000 loan, that gap translates to roughly $50 to $100 more per month, or $18,000 to $36,000 over the life of a 30-year mortgage. Improving your score before you apply can meaningfully change the loan amount you qualify for.
How Income Is Verified
If you’re a W-2 employee, income verification is straightforward. Lenders typically look at your pay stubs from the last 30 days and your W-2s from the past two years. They want to see stable or growing earnings.
Self-employed borrowers face a more involved process. Most lenders require at least two years of consistent self-employment in the same industry. You’ll need to provide two years of personal tax returns, two years of business tax returns (including schedules like K-1, 1120, or 1120S), a year-to-date profit and loss statement, and a current balance sheet. The key difference: lenders calculate your qualifying income based on your taxable income after business expenses, not your gross revenue. If you write off aggressively to minimize your tax bill, your qualifying income may be lower than you expect.
If you haven’t been self-employed for two full years, some lenders will accept a combination of W-2 income from a previous employer alongside your self-employment documentation. Freelancers and gig workers follow similar rules, and lenders want to see that earnings are steady or ideally trending upward.
Conforming Loan Limits
Even if your income and credit support a large loan, there are caps on what counts as a “conforming” loan, meaning one that Fannie Mae or Freddie Mac will purchase. For 2026, the conforming loan limit for a one-unit property is $832,750 in most of the country. In high-cost areas, that ceiling rises to $1,249,125.
You can borrow more than these amounts, but you’d need a jumbo loan, which typically requires a higher credit score (often 700 or above), a larger down payment (10% to 20% minimum), and more cash reserves. Jumbo loans also tend to carry slightly higher interest rates, though the gap has narrowed in recent years.
Down Payment and How It Shifts Your Approval
Your down payment doesn’t directly change the income-based approval formula, but it affects your loan amount, your monthly payment, and your overall competitiveness as a borrower. A larger down payment means borrowing less, which lowers your monthly PITI and makes it easier to stay within DTI limits.
Conventional loans allow as little as 3% down for first-time buyers, though you’ll pay PMI until you reach 20% equity. FHA loans require a minimum of 3.5% down with a credit score of 580 or higher. VA loans and USDA loans offer zero-down options for eligible borrowers, which can significantly expand purchasing power for those who qualify.
A Quick Way to Estimate Your Range
Before you talk to a lender, you can rough out your approval range with simple math:
- Step 1: Find your gross monthly income (annual salary divided by 12).
- Step 2: Multiply that by 0.43 (a common DTI cap) to get your maximum total monthly debt allowance.
- Step 3: Subtract your existing monthly debt payments (car, student loans, credit cards).
- Step 4: The remainder is your estimated maximum mortgage payment, including taxes and insurance.
- Step 5: Subtract estimated monthly property taxes and insurance (often $300 to $600 combined, depending on your area and home value) to find what’s left for principal and interest.
Using an online mortgage calculator, plug that principal-and-interest figure in at current rates to see the loan amount it supports. This won’t be exact, since lenders weigh dozens of factors, but it gives you a realistic starting point.
What Lenders Look at Beyond the Numbers
DTI and credit scores are the headline metrics, but lenders also examine your employment history (two years of steady work is the norm), your savings and cash reserves (especially for jumbo loans or manual underwriting), and any recent financial red flags like bankruptcies, foreclosures, or collections. Large, unexplained deposits in your bank account will prompt questions, since lenders need to verify that your down payment isn’t a disguised loan.
Getting preapproved before you start shopping gives you a concrete number rather than an estimate. During preapproval, a lender pulls your credit, reviews your documents, and issues a letter stating the loan amount you qualify for. That letter typically stays valid for 60 to 90 days and signals to sellers that you’re a serious buyer. Keep in mind that preapproval is not a guarantee. Final approval happens after the lender reviews the specific property, orders an appraisal, and completes underwriting.