Understanding how much you can afford for a mortgage is a crucial first step in the home-buying process. This calculator helps you estimate your maximum mortgage loan amount based on your income, debts, and current interest rates. Remember, this is an estimate and your actual loan approval may vary.
How Mortgage Affordability is Calculated
Lenders typically use debt-to-income (DTI) ratios to determine how much you can borrow. There are generally two DTI ratios they consider:
Front-end DTI (Housing Ratio): This measures the percentage of your gross monthly income that would go towards your total housing payment (principal, interest, property taxes, and homeowner's insurance). Lenders often prefer this to be no more than 28%.
Back-end DTI (Total Debt Ratio): This measures the percentage of your gross monthly income that goes towards all of your monthly debt obligations, including your potential mortgage payment, credit cards, auto loans, student loans, etc. Lenders often prefer this to be no more than 36%, though some may go up to 43% or even higher depending on other factors.
This calculator simplifies this by using a common guideline where your total monthly housing payment (principal, interest, taxes, insurance) plus your existing monthly debt payments should not exceed a certain percentage (often 43%) of your gross monthly income. We then work backward to estimate the maximum loan amount you could qualify for.
Formula Used (Simplified):
Calculate Gross Monthly Income: Annual Gross Income / 12
Calculate Maximum Allowable Monthly Debt Payment: Gross Monthly Income * 0.43 (43% DTI ratio guideline)
Calculate Maximum Allowable Monthly Mortgage Payment: Maximum Allowable Monthly Debt Payment – Monthly Debt Payments
Calculate Maximum Loan Amount: This is a bit more complex as it depends on interest rate and loan term. We use a loan payment formula and solve for the principal (loan amount). The formula for monthly mortgage payment (M) is: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1], where P is the principal loan amount, i is the monthly interest rate (annual rate / 12 / 100), and n is the total number of payments (loan term in years * 12). We rearrange this to solve for P.
Subtract Down Payment: The affordability is then calculated as Maximum Loan Amount.
Disclaimer: This calculator provides an estimation for educational purposes only. It does not constitute financial advice. Actual mortgage approval depends on lender-specific criteria, credit score, employment history, property appraisal, and other factors.
function calculateMortgageAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var existingDebt = parseFloat(document.getElementById("existingDebt").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(annualIncome) || isNaN(existingDebt) || isNaN(interestRate) || isNaN(loanTerm) || isNaN(downPayment)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (annualIncome <= 0 || existingDebt < 0 || interestRate <= 0 || loanTerm <= 0 || downPayment < 0) {
resultDiv.innerHTML = "Please enter positive values for income, rate, and term, and non-negative values for debt and down payment.";
return;
}
var grossMonthlyIncome = annualIncome / 12;
var maxDtiRatio = 0.43; // Common guideline for total debt ratio
var maxMonthlyPaymentAllowed = grossMonthlyIncome * maxDtiRatio;
var maxMortgagePayment = maxMonthlyPaymentAllowed – existingDebt;
if (maxMortgagePayment 0) {
var factor = Math.pow(1 + monthlyInterestRate, numberOfPayments);
maxLoanAmount = maxMortgagePayment * (factor – 1) / (monthlyInterestRate * factor);
} else {
// Handle zero interest rate case (though unlikely for mortgages)
maxLoanAmount = maxMortgagePayment * numberOfPayments;
}
var estimatedAffordability = maxLoanAmount; // This is the loan amount, not total house price yet
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
resultDiv.innerHTML = "Estimated Maximum Loan Amount: " + formatter.format(estimatedAffordability) + "";
resultDiv.innerHTML += "Estimated Maximum Home Purchase Price (including down payment): " + formatter.format(estimatedAffordability + downPayment) + "";
resultDiv.innerHTML += "Note: This estimate assumes a 43% maximum DTI ratio and does not include property taxes, homeowner's insurance, or potential PMI, which would increase your total monthly housing payment and reduce affordability.";
}
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