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With $1,650 of other monthly debt, the 43% total-debt limit binds first and leaves $2,829 a month for housing, which carries a $425,000 price with $85,000 down.

How gross monthly income splits at that price

$10,417 a month

Housing payment$2,829
Other debts$1,650
Everything else$5,938

The math, with your numbers

Gross monthly income$10,417Annual income ÷ 12$125,000 ÷ 12

Housing payment allowed$2,829Lesser of 28% of income and 43% of income − other debtslesser of $2,917 and $4,479 − $1,650

Loan$340,000Price − down payment$425,000 − $85,000

Housing payment$2,829Principal + interest at 7% for 30 years, plus taxes and insurance$2,262 + $567

Front-end ratio27.2%Housing payment ÷ monthly income$2,829 ÷ $10,417

Back-end ratio43.0%(Housing payment + other debts) ÷ monthly income($2,829 + $1,650) ÷ $10,417

The 28% and 43% limits are a common lender ceiling, not a target. Price is rounded down to the nearest $1,000.

How this calculator works

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.

Here is the $425,000 duplex worked from the income side. $125,000 a year is $10,417 a month. At 28%, housing could run $2,917. At 43% of income, total debt could run $4,479, and $1,650 of existing car and student loan payments leaves $2,829 for housing, so the back-end ratio binds. With $85,000 down, the $340,000 loan at 7% over 30 years costs $2,262 a month, and taxes plus insurance at 1.6% of price add $567: $2,829, which lands on $425,000. This example counts personal income only. Any rent a lender credits would raise the ceiling.

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.

Key insights

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.

Frequently asked questions

How much rental income do lenders count?›

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.

What debt-to-income ratio is needed for an investment property?›

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.

Can I buy a rental with no personal income documentation?›

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.

How much cash do I need beyond the down 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.

Does existing rental income help me qualify?›

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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