To calculate how much you can afford to borrow on a house, lenders look at a few different factors of your overall financial health. According to NerdWallet those factors include:

Household income
Monthly debts (e.g., student loans, car loans, etc.)
Down payment on the home

Before we get into the specifics, this calculator provides two estimates, one for aggressive underwriting guidelines and one that uses conservative guidelines. When the economy is strong, mortgage lenders will tend to lower their loan qualification standards. When the economy is weaker, these standards will typically rise.

The home loan calculator uses your household income and monthly debt obligations to calculate your debt-to-income (DTI) ratio. For example, if your monthly income was $3,000 and your debt obligations totaled $500 monthly, your DTI ratio would be 16%.

In general, your housing costs should amount to no more than 28% of your monthly pre-tax income. Your total debts should not amount to more than 36% of your pre-tax income. The calculator uses this rule to calculate what monthly mortgage payment you can likely afford to pay.

From there, the calculator uses your loan information to estimate the loan amount based on the term of the loan, the interest rate, your down payment, plus any other obligations like property tax and homeowners insurance.