Determining how much house you can afford is a crucial step in the home-buying process. Lenders typically use a set of guidelines to assess your borrowing capacity, and these guidelines are influenced by your income, existing debts, and the potential mortgage itself. This Mortgage Affordability Calculator helps you get an estimated idea of your borrowing power based on common lending criteria.
Key Factors in Mortgage Affordability:
Annual Income: This is your gross annual income before taxes. Lenders look at your income to determine your ability to make monthly payments.
Total Monthly Debt Payments: This includes all your recurring monthly 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 payment.
Down Payment: The amount of money you pay upfront towards the purchase of the home. A larger down payment reduces the loan amount needed and can sometimes lead to better loan terms.
Interest Rate: The percentage charged by the lender on the loan. A lower interest rate means a lower monthly payment for the same loan amount.
Loan Term: The length of time you have to repay the mortgage, typically 15 or 30 years. Shorter terms generally have higher monthly payments but result in less interest paid over the life of the loan.
How Lenders Assess Affordability (The DTI Ratio):
Lenders often use the Debt-to-Income (DTI) ratio to gauge your ability to manage monthly housing payments and all other debts. There are generally two DTI ratios lenders consider:
Front-End DTI (Housing Ratio): This ratio compares your potential total monthly housing expenses (principal, interest, property taxes, homeowner's insurance, and HOA fees – often called PITI) to your gross monthly income. Many lenders prefer this to be no more than 28% of your gross monthly income.
Back-End DTI (Total Debt Ratio): This ratio compares your total monthly debt payments (including the potential mortgage PITI) to your gross monthly income. Lenders typically want this ratio to be no more than 36% of your gross monthly income, though some may go up to 43% or even higher depending on other factors.
This calculator estimates your maximum affordable loan amount by considering a typical 36% back-end DTI ratio, factoring in your income and existing debts. It then calculates the maximum monthly mortgage payment you could afford, and subsequently, the maximum loan amount you could borrow given the specified interest rate and loan term.
Example Scenario:
Let's say you have an annual income of $80,000, your total monthly debt payments (excluding mortgage) are $500, you have a down payment of $20,000, you're looking at an interest rate of 6.5%, and a loan term of 30 years. The calculator will help you determine how much you might be able to borrow and what that means for your potential home purchase.
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function calculateMortgageAffordability() {
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
// Input validation
if (isNaN(annualIncome) || annualIncome <= 0 ||
isNaN(monthlyDebt) || monthlyDebt < 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(interestRate) || interestRate <= 0 ||
isNaN(loanTerm) || loanTerm <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
// Calculate gross monthly income
var grossMonthlyIncome = annualIncome / 12;
// Define DTI limits (common guidelines)
var maxTotalDtiRatio = 0.36; // 36% back-end DTI
// Calculate maximum total monthly debt allowed
var maxTotalDebtAllowed = grossMonthlyIncome * maxTotalDtiRatio;
// Calculate maximum PITI (Principal, Interest, Taxes, Insurance) payment
var maxPitiPayment = maxTotalDebtAllowed – monthlyDebt;
if (maxPitiPayment <= 0) {
resultDiv.innerHTML = "Your existing debts are too high to afford a mortgage with current income and DTI limits.";
return;
}
// Convert annual interest rate to monthly interest rate
var monthlyInterestRate = (interestRate / 100) / 12;
// Convert loan term in years to months
var loanTermMonths = loanTerm * 12;
// Calculate maximum loan amount using the loan payment formula
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// Where:
// M = monthly payment (maxPitiPayment)
// P = principal loan amount (what we want to find)
// i = monthly interest rate (monthlyInterestRate)
// n = number of months (loanTermMonths)
var maxLoanAmount = 0;
if (monthlyInterestRate > 0) {
maxLoanAmount = maxPitiPayment * (Math.pow(1 + monthlyInterestRate, loanTermMonths) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, loanTermMonths));
} else { // Handle 0% interest rate case (unlikely but for completeness)
maxLoanAmount = maxPitiPayment * loanTermMonths;
}
// The calculated maxLoanAmount is the maximum principal you can borrow.
// To estimate the maximum home price, we add the down payment.
var estimatedMaxHomePrice = maxLoanAmount + downPayment;
// Format results for display
var formattedMaxLoanAmount = maxLoanAmount.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedMaxHomePrice = estimatedMaxHomePrice.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedMaxPitiPayment = maxPitiPayment.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
resultDiv.innerHTML = "Based on your inputs:" +
"Estimated Maximum Monthly PITI Payment: " + formattedMaxPitiPayment + "" +
"Estimated Maximum Loan Amount: " + formattedMaxLoanAmount + "" +
"Estimated Maximum Home Price (incl. down payment): " + formattedMaxHomePrice + "";
}