Finance

House Affordability: The Framework I Use (PITI, DTI, and +1% Stress Test)

A comprehensive, personal affordability framework: how I model PITI, debt-to-income, and a rate stress test so I don’t buy a house that only works on paper.

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Deep dive into the terms and formulas used in these calculations:

PITI (Principal, Interest, Taxes, Insurance)

PITI explained: what's included, what's not (HOA/maintenance), and why PITI matters for true housing cost.

DTI (Debt-to-Income Ratio)

DTI explained: housing vs total DTI, why lenders use it, and how to use it safely for affordability planning.

View all finance formulas →

Ahmet C. Toplutaş

12/14/2025

22 min read

The biggest homebuying mistake I’ve seen (and almost made) is buying a payment that only works under perfect assumptions. The affordability framework I trust is boring on purpose: it models the full monthly housing cost (PITI + HOA + maintenance), checks debt-to-income (DTI), and then runs a +1% rate stress test. This guide is exactly how I do it, with the calculators I use to sanity-check the numbers.

1) Affordability starts with PITI (not mortgage P&I)

Most people compare rent to mortgage principal & interest and call it a day. That’s incomplete. Affordability is about the full monthly obligation: Principal, Interest, Taxes, and Insurance (PITI)—plus HOA (if any) and a maintenance reserve.

My monthly cost checklist

Principal & interest (mortgage payment)
Property taxes (monthly equivalent)
Homeowners insurance (monthly equivalent)
HOA dues (if applicable)
Maintenance reserve (often 1%–3% of home value per year)
Utilities delta (sometimes higher than renting)

2) Debt-to-income (DTI): the constraint that keeps you safe

Lenders approve what they can sell. You should choose what you can comfortably pay. I track two DTIs: (a) housing-only ratio and (b) total DTI including all debt payments. If either one is tight, I downshift the target price—even if the bank says yes.

Rules of thumb (not guarantees)

Housing-only: keep total housing cost comfortably under your income (stress test included).
Total DTI: include all debt payments (car, student loans, credit cards).
Leave room for savings, emergencies, and life changes.

3) The +1% stress test (the habit that changed my decisions)

If the payment is barely comfortable at the quoted rate, you’re relying on luck. I run the same scenario with +1% rate (and occasionally +2%) to see if it still fits my budget and lifestyle. If it fails the stress test, I treat it as unaffordable.

How I run it

Use the Mortgage Calculator to compute P&I
Add taxes/insurance/HOA/maintenance to get total monthly cost
Re-run with +1% rate
If total cost becomes stressful, I lower the price or increase down payment

4) Two examples (why the same income can afford wildly different homes)

Affordability isn’t just income. Rate, taxes, HOA, and down payment change everything. Two people with the same salary can have totally different safe price ranges.

Example A: low HOA, moderate taxes

Home price: $450k, down payment: 20%, rate: 6.5%
Add PITI + maintenance reserve; then stress test +1%
Result: the +1% test is the deciding factor, not the base case

Example B: high HOA, higher taxes

Home price: $450k, down payment: 20%, same rate
HOA + taxes push monthly cost up materially
Result: the same home price becomes meaningfully less affordable

5) The framework (copy/paste)

If you want the simplest process that still works, do this: (1) compute full monthly cost, (2) check DTI, (3) stress test rate, (4) keep an emergency buffer, (5) decide. The goal is not max affordability—it’s sustainable affordability.

Tools to use

House Affordability Calculator: top-down range check
Mortgage Calculator: detailed P&I
Payment Calculator: quick comparisons across terms
Rent vs Buy Calculator: sanity-check opportunity cost and horizon

❓House Affordability FAQ

What does PITI mean?

Principal, Interest, Taxes, and Insurance—core components of total monthly housing cost (excluding HOA and maintenance).

Why stress test with +1% rate if I have a fixed loan?

It’s a proxy for uncertainty (income changes, taxes/insurance rising, repairs). If +1% breaks the budget, the base case is too tight.

Is 20% down required?

No, but it can reduce PMI and monthly cost. The real rule is: keep the total monthly obligation sustainable under stress.

💡Pro tips

Never evaluate affordability using mortgage P&I alone—use total monthly cost.
Run at least two rate scenarios (+1% stress test).
Treat maintenance like a monthly bill.
If you’re unsure about staying 5+ years, give the move scenario real weight.

Key Takeaways

Affordability is not a single number—it’s a set of assumptions. If you model PITI, check DTI, and pass a +1% stress test, you’re much less likely to end up “house poor.” The goal isn’t to maximize your approval. It’s to maximize your freedom after the purchase.

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