Mortgage Affordability Calculator
Understanding Mortgage Affordability
Determining how much house you can afford is a crucial step in the home-buying process. While lenders will provide pre-approval amounts, understanding your own affordability helps you set realistic expectations and avoid overextending your finances. This mortgage affordability calculator is designed to give you an estimated maximum loan amount you might qualify for, based on common lending guidelines.
Key Factors in Mortgage Affordability:
- Annual Household Income: This is the primary driver of how much you can borrow. Lenders look at your total documented income from all sources.
- Monthly Debt Payments: Existing financial obligations, such as car loans, student loans, and credit card minimum payments, significantly impact your debt-to-income ratio (DTI), a key metric for lenders.
- Down Payment: A larger down payment reduces the loan amount needed and can also lead to better interest rates and potentially avoid private mortgage insurance (PMI).
- Interest Rate: Even small differences in interest rates can have a substantial impact on your monthly payment and the total interest paid over the life of the loan.
- Loan Term: Shorter loan terms (e.g., 15 years) result in higher monthly payments but less total interest paid. Longer terms (e.g., 30 years) offer lower monthly payments but more total interest.
How the Calculator Works:
This calculator uses a common guideline where lenders often look at a maximum front-end debt-to-income ratio (DTI) of around 28% and a back-end DTI of around 36%. The calculator estimates your maximum possible monthly housing payment (principal, interest, taxes, and insurance – PITI) based on your income and existing debts, and then works backward to estimate the maximum loan amount you could support.
Disclaimer: This calculator provides an estimate for informational purposes only. It does not constitute financial advice. Your actual borrowing capacity will depend on a lender's specific underwriting criteria, your credit score, employment history, and other factors.
Example:
Let's consider a household with an Annual Household Income of $90,000. They have existing Total Monthly Debt Payments of $400 (for a car loan and credit cards). They plan to make a Down Payment of $30,000. They are looking at an estimated Annual Interest Rate of 6.5% for a 30-year mortgage.
Using the calculator with these figures will help estimate their potential mortgage affordability.
function calculateMortgageAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebtPayments = parseFloat(document.getElementById("monthlyDebtPayments").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
if (isNaN(annualIncome) || isNaN(monthlyDebtPayments) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTermYears) ||
annualIncome <= 0 || monthlyDebtPayments < 0 || downPayment < 0 || interestRate <= 0 || loanTermYears <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
// — Affordability Calculation —
// Based on common lender guidelines: front-end DTI ~28%, back-end DTI ~36%
// We'll use the back-end DTI to estimate max PITI, then work backwards.
var monthlyIncome = annualIncome / 12;
// Max total housing payment (PITI) based on back-end DTI (e.g., 36%)
var maxPiti = monthlyIncome * 0.36;
// Max monthly debt payments allowed (including PITI)
var maxTotalMonthlyDebt = monthlyIncome * 0.36; // Using the same 36% for simplicity, though some allow higher for housing specifically
// Max monthly mortgage payment (Principal & Interest only)
// We need to estimate taxes and insurance. Let's assume PITI is roughly 1.25 times P&I for estimation.
// A more precise calculation would involve estimating taxes and insurance separately,
// but for an affordability estimate, this is a reasonable simplification.
// Let's estimate taxes & insurance at 20% of PITI for this calculation.
var estimatedMonthlyTaxesInsurance = maxPiti * 0.20;
var maxPrincipalInterest = maxPiti – estimatedMonthlyTaxesInsurance;
// If maxPrincipalInterest is less than existing debt payments, affordability is zero
if (maxPrincipalInterest 0) {
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// Rearranging for P: P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
var numerator = Math.pow(1 + monthlyInterestRate, loanTermMonths) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, loanTermMonths);
maxLoanAmount = maxPrincipalInterest * (numerator / denominator);
} else {
// Handle zero interest rate case (though unlikely for mortgages)
maxLoanAmount = maxPrincipalInterest * loanTermMonths;
}
// The maximum affordable home price is the max loan amount plus the down payment.
var maxAffordablePrice = maxLoanAmount + downPayment;
// — Display Results —
var formattedMaxLoanAmount = maxLoanAmount.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedMaxAffordablePrice = maxAffordablePrice.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedMaxPiti = maxPiti.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
resultDiv.innerHTML =
"Estimated Maximum Monthly Housing Payment (PITI):
" + formattedMaxPiti + "" +
"Estimated Maximum Loan Amount:
" + formattedMaxLoanAmount + "" +
"Estimated Maximum Affordable Home Price (with your down payment):
" + formattedMaxAffordablePrice + "" +
"
This is an estimate based on common DTI ratios. Actual loan approval depends on lender's specific criteria, credit score, and other factors.";
}
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