Use this calculator to estimate how much home you can afford based on your income, debts, and down payment. Remember, this is an estimate, and actual loan approval depends on lender criteria.
Understanding Mortgage Affordability
Determining how much house you can afford is a crucial step in the home-buying process. Several factors influence your borrowing power, and lenders typically consider them using specific debt-to-income ratios.
Key Factors:
Annual Household Income: This is the primary driver of how much you can borrow. Lenders want to ensure you have sufficient income to cover the mortgage payments and other living expenses.
Monthly Debt Payments: This includes all your existing recurring debt obligations such as car loans, student loans, credit card minimum payments, and personal loans. These debts reduce the amount of income available for a mortgage.
Down Payment: A larger down payment reduces the loan amount needed, which in turn lowers your monthly payments and can potentially improve your loan terms. It also reduces the loan-to-value (LTV) ratio.
Interest Rate: Even small changes in interest rates can significantly impact your monthly payment and the total interest paid over the life of the loan.
Loan Term: A shorter loan term (e.g., 15 years) results in higher monthly payments but less interest paid overall. A longer term (e.g., 30 years) has lower monthly payments but more interest over time.
Debt-to-Income (DTI) Ratios:
Lenders commonly use two DTI ratios:
Front-End Ratio (Housing Ratio): This ratio compares your potential total monthly housing expenses (principal, interest, taxes, insurance, and HOA fees – PITI) to your gross monthly income. A common target is 28% or less.
Back-End Ratio (Total Debt Ratio): This ratio compares your total monthly debt obligations (including PITI) to your gross monthly income. A common target is 36% to 43% or less, though some programs allow higher.
This calculator provides an estimate based on common lending guidelines, primarily focusing on the back-end ratio to determine the maximum affordable mortgage payment and, subsequently, the maximum loan amount you might qualify for. It assumes a PITI payment that, when added to your existing debts, does not exceed a certain percentage of your income.
Example:
Let's say you have an annual household income of $90,000 ($7,500/month gross). Your total existing monthly debt payments are $500. You have a down payment of $30,000. You're looking at a 30-year loan at an estimated 6.5% interest rate.
If a lender uses a maximum back-end DTI of 40%, your total monthly debt (including estimated housing costs) cannot exceed $7,500 * 0.40 = $3,000.
Subtracting your existing debts: $3,000 – $500 = $2,500 available for the total monthly housing payment (PITI).
This calculator will then estimate the maximum loan amount that results in a PITI payment of approximately $2,500 (or less, depending on how the affordability is calculated), which you can then add your down payment to for an estimated home price.
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function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// Basic validation
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (annualIncome <= 0 || monthlyDebt < 0 || downPayment < 0 || interestRate <= 0 || loanTerm <= 0) {
resultDiv.innerHTML = "Please enter positive values for income, rate, and term, and non-negative for debts and down payment.";
return;
}
var grossMonthlyIncome = annualIncome / 12;
// Using a common DTI guideline (e.g., 43% back-end ratio)
var maxTotalMonthlyDebtPayment = grossMonthlyIncome * 0.43;
var maxMonthlyMortgagePayment = maxTotalMonthlyDebtPayment – monthlyDebt;
if (maxMonthlyMortgagePayment 0) {
// Formula to find Principal (P) given M, r, n
// M = P * [r(1+r)^n] / [(1+r)^n – 1]
// P = M * [(1+r)^n – 1] / [r(1+r)^n]
// Or, using the present value of annuity formula rearrangement:
// P = M * (1 – (1 + r)^-n) / r
maxLoanAmount = maxMonthlyMortgagePayment * (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate;
} else {
// If interest rate is 0%, loan amount is simply monthly payment * number of payments
maxLoanAmount = maxMonthlyMortgagePayment * numberOfPayments;
}
var estimatedMaxHomePrice = maxLoanAmount + downPayment;
// Format results
var formattedMaxLoan = maxLoanAmount.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedMaxHomePrice = estimatedMaxHomePrice.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedMaxMonthlyMortgage = maxMonthlyMortgagePayment.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
resultDiv.innerHTML =
"Estimated Maximum Loan Amount: " + formattedMaxLoan + "" +
"Estimated Maximum Home Price: " + formattedMaxHomePrice + "" +
"Estimated Max Monthly Mortgage Payment (P&I): " + formattedMaxMonthlyMortgage;
}