Mortgage Affordability Calculator
Understanding Mortgage Affordability
Buying a home is a significant financial decision, and understanding how much mortgage you can realistically afford is crucial. Mortgage affordability is determined by several factors, primarily your income, existing debt, the size of your down payment, the prevailing interest rates, and the loan term. Lenders use various metrics to assess your ability to repay a loan, but a good personal calculation can help you set realistic expectations before you even start house hunting.
Key Factors in Mortgage Affordability:
- Annual Household Income: This is the most significant factor. Lenders look at your gross annual income to determine your repayment capacity. Higher income generally means a higher potential loan amount.
- Monthly Debt Payments: This includes car loans, student loans, credit card minimum payments, and any other recurring debt obligations. High monthly debt payments reduce your disposable income and can lower the amount you can borrow for a mortgage.
- Down Payment: A larger down payment reduces the amount you need to borrow, which in turn lowers your monthly payments and can also help you secure better interest rates. It also reduces the lender's risk.
- Interest Rate: The interest rate significantly impacts your monthly payment and the total cost of the loan over time. Even small changes in the interest rate can make a substantial difference in affordability.
- Loan Term: This is the period over which you will repay the mortgage, typically 15 or 30 years. A shorter loan term results in higher monthly payments but less interest paid overall. A longer term means lower monthly payments but more interest paid over the life of the loan.
The 28/36 Rule (A Common Guideline):
While this calculator provides a specific estimate, a common guideline used by lenders is the 28/36 rule. It suggests that your total housing expenses (including principal, interest, taxes, and insurance – PITI) should not exceed 28% of your gross monthly income, and your total debt payments (including housing and all other debts) should not exceed 36% of your gross monthly income. This calculator focuses on a simplified approach to estimating borrowing power based on income and debt, which is a core component of this rule.
Use this calculator to get a preliminary idea of your mortgage affordability. Remember that this is an estimate, and your actual borrowing capacity will be determined by a lender after a thorough review of your financial situation.
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) / 100;
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(annualIncome) || annualIncome <= 0 ||
isNaN(monthlyDebtPayments) || monthlyDebtPayments < 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(interestRate) || interestRate < 0 ||
isNaN(loanTerm) || loanTerm <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var grossMonthlyIncome = annualIncome / 12;
var maxTotalMonthlyDebtAllowed = grossMonthlyIncome * 0.36;
var availableForMortgage = maxTotalMonthlyDebtAllowed – monthlyDebtPayments;
if (availableForMortgage 0) {
maxLoanAmount = availableForMortgage * (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments));
} else {
// Handle 0% interest rate case (simple division)
maxLoanAmount = availableForMortgage * numberOfPayments;
}
// The maximum loan amount calculated is what you can afford for the *principal*.
// The total affordable home price would be this max loan amount plus your down payment.
var affordableHomePrice = maxLoanAmount + downPayment;
resultDiv.innerHTML =
"
Affordability Estimate:
" +
"Gross Monthly Income: $" + grossMonthlyIncome.toFixed(2) + "" +
"Maximum Total Monthly Debt Allowed (36%): $" + maxTotalMonthlyDebtAllowed.toFixed(2) + "" +
"Amount Available for Mortgage Payment: $" + availableForMortgage.toFixed(2) + "" +
"Estimated Maximum Loan Principal: $" + maxLoanAmount.toFixed(2) + "" +
"
Estimated Maximum Affordable Home Price: $" + affordableHomePrice.toFixed(2) + "" +
"
Note: This is an estimate. Actual loan approval depends on lender specific criteria, credit score, property taxes, insurance, and PMI.";
}
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