Most buyers start this process backwards. They find a home they love, then scramble to figure out if they can afford it. A clearer path is to set your budget first — before you ever walk through a door.

This guide covers the actual math lenders use, the Texas-specific costs that most affordability calculators miss, and how to set a number you can feel confident about.

The Two Numbers Every Texas Lender Looks At

When a lender evaluates your application, they focus on two debt-to-income (DTI) ratios. These are the most important affordability metrics to understand before you apply.

Front-end DTI is your proposed housing payment (principal, interest, property taxes, insurance, and HOA if applicable) divided by your gross monthly income. Most conventional lenders prefer this stays at or below approximately 28%.

Back-end DTI is all of your monthly debt payments — the new housing payment plus car loans, student loans, credit cards, and any other obligations — divided by gross monthly income. Conventional lenders typically look for this at or below approximately 43–45%, though some loan programs allow higher ratios with compensating factors like strong credit or significant reserves.

Quick estimate: Take your gross annual income and divide by 4. That gives you a rough ceiling on home price that keeps most buyers in a comfortable DTI range — for example, a household earning approximately $100,000 per year might look in the $250,000–$300,000 range before factoring in down payment and Texas-specific costs.

Texas Has Higher Property Tax Than Most States — Build It In

This is the single biggest thing that online affordability calculators get wrong for Texas buyers. Texas has no state income tax, but property taxes are among the highest in the country. Effective rates across the DFW metroplex typically run approximately 2.0%–2.5% of the assessed value per year, depending on the county, city, and local school district.

On a $350,000 home, that means roughly $7,000–$8,750 per year in property taxes, or approximately $583–$729 per month added to your mortgage payment. A national affordability tool might estimate half that amount.

Always ask your agent or lender to pull the actual tax history on any home you're considering. Current tax rates in Texas can be found through the county appraisal district — for example, the Dallas Central Appraisal District or Tarrant Appraisal District publish their rates online.

What Your Down Payment Actually Changes

Your down payment affects your affordability in two distinct ways: it changes your loan amount (and therefore your monthly payment), and it determines whether you're required to pay private mortgage insurance (PMI).

With conventional financing, putting less than 20% down typically triggers PMI, which can add approximately $50–$200 per month depending on loan size and credit score. That monthly cost factors directly into your DTI.

FHA loans allow down payments as low as 3.5% for buyers with credit scores of approximately 580 or higher, and they carry mortgage insurance premiums (MIP) for the life of the loan in most cases. VA loans — available to qualifying veterans and active-duty service members — require no down payment and no PMI.

Texas down payment assistance: The Texas Department of Housing and Community Affairs (TDHCA) offers programs that can help cover down payment and closing costs for eligible buyers. Income and purchase price limits apply and vary by program. A Texas-licensed lender can confirm current availability.

Credit Score Shapes Your Rate More Than You Might Expect

Two buyers with identical incomes and down payments can end up with meaningfully different monthly payments based on their credit scores. A buyer with a 760 score might qualify for a rate approximately 0.5%–1.0% lower than a buyer at 680 — on a $300,000 loan, that difference is roughly $100 or more per month over the life of the loan.

Before you start shopping, pull your credit reports (free annually at AnnualCreditReport.com) and address any errors. If your score is below 700, a few months of targeted improvement before applying — reducing credit card balances, avoiding new credit inquiries — can result in meaningfully better terms.

Closing Costs Are a Separate Budget Item

Buyers often plan for a down payment and forget about closing costs. In Texas, closing costs for buyers typically run approximately 2%–4% of the purchase price, covering loan origination fees, title insurance (which in Texas is seller-paid in most transactions, though this is negotiable), escrow, appraisal, and prepaid items like homeowner's insurance and tax escrow.

Texas title insurance note: Texas promulgated rate structure means title insurance premiums are set by the state — but who pays (buyer or seller) is negotiated in the contract. Your REALTOR® can explain what's customary in the specific market where you're shopping.

Running Your Own Numbers Before Getting Pre-Approved

Getting pre-approved is the right next step — but doing a quick calculation first means you'll walk into that conversation informed. Here's a simple approach:

  1. Add up all current monthly debt payments (car, student loans, minimum credit card payments).
  2. Subtract that from 43% of your gross monthly income. The remainder is the maximum housing payment most lenders would consider.
  3. Back out your estimated Texas property taxes and homeowner's insurance from that number. What's left is approximately what's available for principal and interest.
  4. Use a mortgage calculator to find the loan amount that produces that monthly P&I payment at current rates.

That loan amount plus your down payment gives you a realistic purchase price target.

Texas REALTORS® licensed through TREC (Texas Real Estate Commission) can connect you with lenders and walk you through what to expect in the markets where you're looking. EXL Realty Group (TREC #9015220) works with buyers across the DFW area and can help you build a realistic number before you start touring.

Setting your budget early protects you from falling in love with a home that strains your finances — and it puts you in a much stronger position when you're ready to make an offer.