This is an estimate and does not constitute financial advice. Consult with a mortgage professional for personalized guidance.
Understanding How Much House You Can Afford
Determining the price of a house you can afford is a crucial step in the home-buying process. It's not just about what a lender might approve you for, but what fits comfortably within your budget and financial goals. This calculator provides an estimate based on common financial guidelines and mortgage calculations.
The 28/36 Rule and Beyond
A widely used guideline in real estate is the 28/36 rule. This rule suggests that your total housing costs (including mortgage principal and interest, property taxes, homeowners insurance, and HOA dues – often referred to as PITI) should not exceed 28% of your gross monthly income. Additionally, your total debt obligations (including your proposed housing payment plus car loans, student loans, credit card minimums, etc.) should not exceed 36% of your gross monthly income.
Our calculator uses a more detailed approach, aiming to determine the maximum mortgage amount you can qualify for based on your income, existing debts, and current interest rates, and then adds your down payment to arrive at an estimated affordable house price.
How the Calculator Works
The calculator estimates the maximum monthly mortgage payment you can afford. It starts with your gross monthly income and subtracts your existing monthly debt payments. A common lender guideline is to allow housing costs (PITI) to be up to 28% of gross monthly income, or to ensure total debt (including PITI) stays below 36% of gross monthly income. We will use the more conservative aspect of these guidelines to cap your total housing expense.
Once the maximum monthly PITI is determined, the calculator then calculates the maximum loan amount you can support with that payment, considering the provided interest rate and loan term. This is done by using the standard mortgage payment formula, solved for the loan principal (P):
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M is your total monthly mortgage payment (PITI)
P is the principal loan amount (what we want to find)
i is your monthly interest rate (annual rate divided by 12)
n is the total number of payments (loan term in years multiplied by 12)
To find P, we rearrange the formula:
P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
The calculator first estimates your maximum affordable monthly housing payment (PITI). It subtracts your monthly debt payments from your gross monthly income and applies a percentage (typically up to 28% for housing costs, ensuring total debt stays within 36%). It then estimates the monthly costs of property taxes and homeowners insurance by dividing the annual estimates by 12. This leaves the maximum affordable Principal & Interest (P&I) payment.
Using the calculated maximum P&I payment and the provided interest rate and loan term, the calculator solves for the maximum loan principal (P) using the rearranged formula.
Finally, the maximum loan principal is added to your available down payment to estimate the maximum affordable house price.
Important Considerations:
Gross Income: This is your income before taxes and other deductions.
Debt Payments: Include minimum payments for credit cards, student loans, auto loans, personal loans, and any other recurring debt.
Property Taxes & Insurance: These can vary significantly by location and property type.
HOA Dues: If applicable, these should also be factored into your monthly housing costs.
Closing Costs: Remember to budget for closing costs, which are separate from your down payment.
Financial Advisor: This calculator is a tool for estimation. Always consult with a qualified mortgage lender or financial advisor for personalized advice.
Example Scenario:
Let's say you have:
Gross Monthly Income: $7,000
Total Monthly Debt Payments: $600
Available Down Payment: $40,000
Estimated Annual Property Taxes: $3,500
Estimated Annual Homeowners Insurance: $1,500
Estimated Mortgage Interest Rate: 7.0%
Mortgage Loan Term: 30 Years
The calculator would first determine your maximum affordable monthly housing payment (PITI), ensuring it fits within the recommended percentages of your income and total debt. It would then estimate the monthly P&I payment by subtracting the monthly taxes and insurance from the total PITI. Using the interest rate and loan term, it would calculate the maximum loan amount you could afford. Adding your down payment to this loan amount would give you an estimated affordable house price. For instance, if the calculation suggests a maximum loan of $250,000, and you have a $40,000 down payment, your estimated affordable house price would be $290,000.
function calculateAffordableHouse() {
var monthlyIncome = parseFloat(document.getElementById("monthlyIncome").value);
var monthlyDebtPayments = parseFloat(document.getElementById("monthlyDebtPayments").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var estimatedAnnualPropertyTaxes = parseFloat(document.getElementById("estimatedAnnualPropertyTaxes").value);
var estimatedAnnualHomeownersInsurance = parseFloat(document.getElementById("estimatedAnnualHomeownersInsurance").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var resultElement = document.getElementById("result-value");
var disclaimerElement = document.getElementById("disclaimer");
// Clear previous results and styles
resultElement.textContent = "$0";
resultElement.style.color = "#28a745";
disclaimerElement.style.display = "block";
// — Input Validation —
if (isNaN(monthlyIncome) || monthlyIncome <= 0 ||
isNaN(monthlyDebtPayments) || monthlyDebtPayments < 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(estimatedAnnualPropertyTaxes) || estimatedAnnualPropertyTaxes < 0 ||
isNaN(estimatedAnnualHomeownersInsurance) || estimatedAnnualHomeownersInsurance < 0 ||
isNaN(interestRate) || interestRate <= 0 ||
isNaN(loanTermYears) || loanTermYears <= 0) {
resultElement.textContent = "Invalid Input";
resultElement.style.color = "red";
disclaimerElement.style.display = "none";
return;
}
// — Calculation Logic —
// Using common lender guidelines (can be adjusted for conservatism)
// Max housing PITI = 28% of gross monthly income, AND Total Debt (incl. PITI) <= 36% of gross monthly income
// We will use the more conservative limit imposed by the 36% rule on total debt.
var maxTotalDebtPayment = monthlyIncome * 0.36;
var maxPITI = maxTotalDebtPayment – monthlyDebtPayments;
// Ensure maxPITI is not negative
if (maxPITI < 0) {
maxPITI = 0;
}
var monthlyPropertyTaxes = estimatedAnnualPropertyTaxes / 12;
var monthlyHomeownersInsurance = estimatedAnnualHomeownersInsurance / 12;
// Calculate maximum affordable Principal & Interest (P&I) payment
var maxPI = maxPITI – monthlyPropertyTaxes – monthlyHomeownersInsurance;
// Ensure maxPI is not negative
if (maxPI 0 && numberOfPayments > 0) {
// Calculate the maximum loan amount using the mortgage formula rearranged for P
// P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
if (denominator > 0) {
maxLoanAmount = maxPI * (numerator / denominator);
}
} else if (maxPI > 0 && monthlyInterestRate === 0) {
// Handle case of 0% interest rate (rare, but for completeness)
maxLoanAmount = maxPI * numberOfPayments;
}
// Calculate total affordable house price
var affordableHousePrice = maxLoanAmount + downPayment;
// Format the result to two decimal places and add comma separators
var formattedPrice = affordableHousePrice.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",");
resultElement.textContent = "$" + formattedPrice;
// Adjust disclaimer visibility based on calculation outcome
if (affordableHousePrice <= 0) {
disclaimerElement.style.display = "none";
resultElement.textContent = "Insufficient income for a mortgage based on inputs.";
resultElement.style.color = "orange";
}
}