A lender will tell you the most you can borrow. That number and the number you should spend are not the same thing. Here's how both are calculated, and how to land on a Conway home budget that still feels comfortable five years from now.
How lenders set the ceiling
Lenders start with your gross monthly income, meaning income before taxes. Then they apply two ratios.
- The housing ratio. Your total monthly housing payment (principal, interest, taxes, insurance, and any HOA dues) should generally stay at or below 28% of gross income.
- The total debt ratio. Housing plus every other recurring debt (car loans, student loans, credit card minimums) should generally stay at or below 36% to 43%, depending on the program.
Whichever ratio you hit first is your ceiling. For a household earning $85,000 a year, that works out to roughly $1,980 a month for housing, which supports a home price in the high $200,000s with a modest down payment at today's rates. Our affordability calculator runs this math for your numbers.
Why the ceiling isn't the target
Those ratios are limits, not recommendations. They don't know about your daycare bill, your truck payment that ends next year, or the fact that you'd like to keep contributing to retirement. A payment that qualifies on paper can still feel tight in real life.
A better approach: decide what you actually want to spend each month, then work backward to a price. Most families we work with in Faulkner County land somewhere between 20% and 25% of take-home pay for housing.
The costs people forget
The mortgage payment is only part of owning a home. Budget for these too:
- Property taxes, which are collected monthly in escrow and adjust when assessments change
- Homeowners insurance, which has risen sharply across Arkansas in recent years
- Private mortgage insurance if you put less than 20% down on a conventional loan
- Maintenance, which runs about 1% of the home's value per year on average
- Utilities, which are often higher than in an apartment
What a pre-qualification adds
Calculators get you close. A free pre-qualification with a loan originator gets you the real number, because we can account for the specific program you qualify for, the actual tax rate on the neighborhoods you're looking at, and any assistance you're eligible for. It also gives you a letter that tells sellers you're serious.
Ready to put a number on it? Start a quick quote or call the Conway office and we'll walk through it together.
Have a question about your home loan?
Talk to a local Integrity Mortgage loan originator. No pressure, no cost, and a real person who knows the Arkansas market.