How Much House Can You Afford? A Practical Guide

This is the first real question on almost every relocation call we take, and it's usually phrased one of two ways. Either 'how much house can we afford?' or 'we got pre-approved for a number that scared us — is that actually what we should spend?' Those are different questions, and the gap between them is where a lot of out-of-state buyers get into trouble. What a lender will approve you for and what you'll be comfortable paying every month for the next several years are rarely the same figure. This guide walks you through how the math actually works, so you can set your own ceiling before a number on a screen sets it for you.

We're a real estate team, not your lender, accountant, or financial advisor — and on purpose, you won't find live home prices or interest rates in here, because those move and this is meant to stay true. What you'll get instead is the durable framework: the ratios lenders use, what makes up a monthly payment, how your down payment changes the whole equation, and the local cost layers that catch people relocating to Middle Tennessee off guard. The exact dollars come from your lender's Loan Estimate; this is how to read that estimate without needing a translator.

Two numbers: what you can borrow vs. what you should spend

Start by separating the two figures, because conflating them is the single most common affordability mistake. The 'can borrow' number is set by a lender applying qualifying ratios to your income and debts. The 'should spend' number is set by you, looking at your whole financial life — retirement savings, the kids' activities, travel, the emergency fund, the lifestyle you actually want. A lender doesn't see any of that. A good rule of thumb we share constantly: borrow toward the payment you'll be glad you have on a tight month, not the maximum a calculator will bless on a good one.

Why does this matter so much for relocation buyers specifically? Because you may be moving from a state with very different property taxes, insurance costs, and commute patterns, and the payment that felt fine on paper can land differently once you're living it. The fix is simple but disciplined: decide your own monthly comfort number first, then work backward to a price — instead of starting with a price and hoping the payment feels okay.

The ratios lenders actually use: the 28/36 rule

Most lenders evaluate affordability with debt-to-income ratios, and the classic shorthand is the 28/36 rule. It isn't a law — it's a long-standing guideline — but it's a clean way to understand how a lender sizes you up, and it's a good self-check before you ever apply.

The front-end ratio: 28% for housing

The front-end ratio looks at your housing payment alone. Under the 28/36 guideline, no more than about 28% of your gross monthly income (income before taxes) should go to your total housing payment. And total is the operative word: the housing figure is meant to cover your full monthly payment, not just principal and interest — more on those components in the next section. The point of the front-end number is to keep the roof over your head from eating too large a share of what you earn.

The back-end ratio: 36% for all debt

The back-end ratio is the bigger picture: no more than about 36% of your gross monthly income should go to all your debt payments combined — your housing payment plus car loans, student loans, minimum credit-card payments, and any other recurring debt. The Consumer Financial Protection Bureau (CFPB) defines debt-to-income simply as all your monthly debt payments divided by your gross monthly income. Chase's own example: a buyer earning $6,000 a month with $480 in existing car and card payments (8%) could carry a roughly $1,680 housing payment (28%) and still land right at the 36% combined ceiling.

Here's the practical lesson buried in that example: your existing debts directly shrink your home budget. Every $100 of car or student-loan payment is roughly $100 that can't go toward housing under the same ceiling. If you're a few months out from buying, paying down or paying off a revolving balance is often the highest-leverage move you can make on your borrowing power — sometimes more than scraping together extra down payment.

Why your actual approval may run higher than 36%

You'll likely see lenders approve total DTIs above 36% — into the 40s — and there's real history behind that. The CFPB's Qualified Mortgage framework once leaned on a 43% total DTI limit, and the Bureau has since moved the General QM definition away from that hard 43% cap toward a price-based threshold instead. Lenders also apply different limits by loan program. So a higher approval isn't a glitch; it's the system working as designed. But 'allowed' and 'advisable' are different words. The 28/36 guideline is the conservative self-check; the higher approval is the ceiling. You get to choose where in that range you actually want to live.

What's actually in a monthly payment: PITI (and more)

When you picture a mortgage payment, you probably picture loan repayment. But the monthly check is usually four things bundled together, known by the shorthand PITI: Principal, Interest, Taxes, and Insurance. Misjudging affordability almost always comes down to budgeting for the first two and forgetting the second two.

• •Principal — the portion that pays down what you borrowed. Early in the loan this is the smaller slice; it grows over time as the balance shrinks.
• •Interest — the cost of borrowing, charged on your outstanding balance. Early on, this is the larger slice of your payment.
• •Taxes — property taxes, which the lender typically collects monthly and holds for you. This is a big local variable, covered below.
• •Insurance — your homeowners insurance premium, also usually collected monthly. If you put down less than 20% on a conventional loan, mortgage insurance gets added here too.

The taxes and insurance pieces usually flow through an escrow (or impound) account. As the CFPB explains it, a portion of each monthly payment goes into that account so your lender or servicer can pay the property-tax and insurance bills for you when they come due, instead of you facing a large bill once or twice a year. One consequence worth knowing up front: because taxes and insurance can change from year to year, your escrow payment — and therefore your total monthly payment — can change too, even on a fixed-rate loan. A 'fixed' payment fixes the principal and interest, not the tax and insurance line.

If your home is in a community with a homeowners association, add HOA dues on top of PITI. Dues aren't part of the mortgage and don't go through escrow, but they're a real monthly housing cost, and lenders factor them into your housing ratio. New-construction and many newer subdivisions across Middle Tennessee carry HOA dues, so ask for the figure early and fold it into your comfort number.

The down payment: how much, and what each level changes

The down payment does two jobs at once: it lowers the amount you borrow (which lowers principal and interest), and at certain thresholds it removes or reduces mortgage insurance. The widely repeated '20% down' figure is a milestone, not a minimum — and understanding the real minimums by loan type opens up far more options than most first-time and relocation buyers assume.

Minimum down payments by loan type

Each major loan program sets its own floor. These are the program minimums; your lender, credit profile, and price point determine what you actually qualify for:

• •Conventional — as little as 3% down for many qualified buyers, though more down reduces your loan and removes private mortgage insurance at 20%.
• •FHA — a minimum of 3.5% down with a qualifying credit score (10% down applies in the lower credit-score band). FHA is a common path for buyers building credit or with a smaller down payment.
• •VA — $0 down for eligible veterans, active-duty service members, and certain surviving spouses. With military presence across the region, this is a meaningful option for many relocating households.
• •USDA — $0 down for eligible buyers purchasing in qualifying rural areas, subject to income limits. Parts of the outer Middle Tennessee counties can fall within eligible USDA areas.

Mortgage insurance: PMI vs. FHA MIP, and why the difference matters

If you put down less than 20% on a conventional loan, you'll typically pay private mortgage insurance (PMI). The CFPB is blunt about what it is: PMI protects the lender, not you, if you stop making payments. The borrower pays the premium, usually folded into the monthly payment. The good news is that PMI is temporary. Under the federal Homeowners Protection Act, you can request cancellation once your balance reaches 80% of the home's original value, and your servicer must automatically terminate it once the balance is scheduled to reach 78% of original value, provided you're current on the loan. In short, conventional PMI comes off as you build equity.

FHA loans work differently, and this trips up buyers comparing the two. FHA charges a mortgage insurance premium (MIP) — both an upfront amount and an ongoing monthly amount — and on most FHA loans with a low down payment, that monthly MIP lasts the life of the loan unless you refinance into a different loan type. (Putting 10% or more down on FHA shortens it to a set number of years.) The takeaway: a lower FHA down payment can mean lower upfront cash but a longer-lasting insurance cost, while conventional PMI is cancellable. Which path is cheaper over your real holding period is a math question worth asking your lender to run both ways.

Don't drain your reserves to hit 20%

A bigger down payment lowers your payment and can eliminate PMI — but emptying your savings to reach 20% can leave you house-rich and cash-poor on day one, right when a new home tends to generate expenses. Lenders look at reserves for a reason. As a planning frame, weigh the monthly savings from a larger down payment against the security of keeping a healthy emergency fund and money for the moving, furnishing, and early-repair costs that always follow a purchase. The right down payment is the one that lowers your payment to a comfortable level without leaving you exposed.

The local cost layers relocation buyers underestimate

National affordability calculators are a fine starting point, but they don't know your zip code. Three local layers move the real number in Middle Tennessee, and the first one surprises people in both directions.

Property taxes and Tennessee's 25% assessment ratio

Property taxes are a major component of your monthly payment, and Tennessee has a structural feature worth understanding: residential property is assessed at 25% of its appraised value, an assessment ratio set by the state. The tax rate applies to that quarter of the appraised value, not the full value. Tennessee also has no state income tax, which is part of what draws many relocating households here. Because tax rates and appraised values vary by county and city, don't assume your prior state's tax math carries over — and don't plug a national average into your budget. Use the actual figure for the specific property, which your lender will incorporate into the tax line of your payment.

Homeowners insurance and any HOA dues

Homeowners insurance is required by your lender and collected through escrow, and premiums vary by the home, its features, and the insurer — which means it's a cost you can shop. If the property is in an HOA, those dues stack on top of your PITI and count toward your housing ratio. Both of these can swing your true monthly cost meaningfully, so gather real quotes rather than guessing, especially when you're comparing two homes at the same price.

Closing costs and cash to close

Affordability isn't only the monthly payment — it's also the cash you need on closing day, which runs well beyond the down payment. Closing costs include loan fees, title and settlement charges, government recording fees and Tennessee's recordation taxes, plus prepaid items like the first year of insurance and the initial escrow deposit. We cover all of that line by line in our companion guide to Tennessee buyer closing costs. Budget for both numbers — the monthly payment and the cash to close — so neither one is a surprise.

Putting it together: a step-by-step way to find your number

Here's the sequence we'd walk a buyer through, in order, before they fall in love with a specific house:

• •Start with your gross monthly income — what you earn before taxes.
• •Apply the 28/36 self-check: roughly 28% as a ceiling for total housing, 36% for all debt combined, then subtract your existing monthly debt payments to see what's left for housing.
• •Sanity-check against your own comfort number — the payment you'd be at ease with on a lean month, which may be lower than the ratios allow.
• •Remember the payment is PITI plus any HOA — principal, interest, taxes, insurance, and dues — not just loan repayment.
• •Choose a down payment that lowers your payment without draining your reserves, and decide whether you want to clear the 20% PMI threshold on a conventional loan.
• •Layer in the local costs — Tennessee property taxes on the 25% assessment, a real insurance quote, HOA dues, and cash to close.
• •Then, and only then, translate that comfortable payment into a price range and get a Loan Estimate to confirm the real figures.

On that last step: get pre-approved early and use the Loan Estimate as your source of truth. The CFPB standardizes the Loan Estimate form precisely so you can compare lenders apples to apples, and a lender must provide one within three business days of a complete application. Shopping two or three lenders is one of the most reliable ways to improve your terms — the form is built for exactly that comparison. A pre-approval also tells you your real ceiling and makes your offer stronger when you do find the home.

A word on the difference between qualifying and being comfortable

We'll close where we started, because it's the part people most often skip. Qualifying for a mortgage proves a lender believes you can repay it. Being comfortable means the payment fits the life you actually want to live — with room for the unexpected, for saving, and for the reasons you're moving here in the first place. The math in this guide gets you to a sound, defensible number. Your own judgment turns that number into the right one for your household. Both matter, and the second one is yours to set.

If you're relocating to the Nashville area or Sumner County and want help turning this framework into a real range — your income, your debts, your target areas, and the actual local costs — that's a conversation we have every week, and we're glad to do it before you start touring, not after. We can also point you to lenders who will give you a clean Loan Estimate to compare. Call or text us at 615-265-1000 and we'll help you find the number you'll be glad you set.