Determining how much house you can afford is a crucial step in the home-buying process. It's not just about the sticker price of the home; it involves a comprehensive look at your financial situation, including your income, existing debts, and the various costs associated with homeownership.
Key Factors in Mortgage Affordability:
Annual Income: Your gross annual income is a primary driver of how much a lender will be willing to loan you. Lenders often use debt-to-income (DTI) ratios to assess your ability to repay a mortgage.
Monthly Debt Payments: This includes all your recurring monthly financial obligations, such as car loans, student loans, and credit card payments. These are subtracted from your gross monthly income to determine how much is available for housing expenses.
Down Payment: The amount you put down upfront significantly impacts your loan amount and, consequently, your monthly payments. A larger down payment reduces the principal you need to borrow and can help you avoid Private Mortgage Insurance (PMI).
Interest Rate: The annual interest rate on your mortgage directly affects your monthly payment and the total interest paid over the life of the loan. Even small differences in interest rates can lead to substantial savings or costs.
Loan Term: This is the duration over which you'll repay your mortgage, typically 15 or 30 years. A shorter term usually means higher monthly payments but less interest paid overall. A longer term results in lower monthly payments but more interest paid.
Property Taxes: These are taxes levied by local governments on the value of your property. They are usually paid annually or semi-annually and are often escrowed as part of your monthly mortgage payment.
Homeowner's Insurance: This insurance protects you financially against damage to your home and liability claims. Like property taxes, it's usually included in your monthly escrow payment.
Private Mortgage Insurance (PMI): If your down payment is less than 20% of the home's purchase price, lenders typically require PMI. This protects the lender in case you default on the loan. PMI costs are usually a percentage of the loan amount and are paid monthly.
How the Calculator Works:
This calculator uses a common guideline that your total housing expenses (principal, interest, taxes, insurance, and PMI – often referred to as PITI) should not exceed a certain percentage of your gross monthly income, typically around 28% to 36%. Additionally, your total monthly debt obligations, including the proposed mortgage payment, should not exceed another threshold, often around 36% to 43% of your gross monthly income. The calculator estimates the maximum loan amount you can qualify for based on these principles and then determines the maximum affordable home price by adding your down payment.
Disclaimer: This calculator provides an estimate for informational purposes only and should not be considered definitive financial advice. Lenders' actual approval criteria may vary. It is recommended to consult with a mortgage professional for personalized guidance.
function calculateAffordability() {
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 propertyTaxes = parseFloat(document.getElementById("propertyTaxes").value);
var homeInsurance = parseFloat(document.getElementById("homeInsurance").value);
var privateMortgageInsurance = parseFloat(document.getElementById("privateMortgageInsurance").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(annualIncome) || annualIncome <= 0 ||
isNaN(monthlyDebt) || monthlyDebt < 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(interestRate) || interestRate <= 0 ||
isNaN(loanTerm) || loanTerm <= 0 ||
isNaN(propertyTaxes) || propertyTaxes < 0 ||
isNaN(homeInsurance) || homeInsurance < 0 ||
isNaN(privateMortgageInsurance) || privateMortgageInsurance < 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
// General lending guidelines (can be adjusted)
var maxHousingRatio = 0.36; // Max % of gross monthly income for PITI
var maxTotalDebtRatio = 0.43; // Max % of gross monthly income for all debts (PITI + other debts)
var grossMonthlyIncome = annualIncome / 12;
var maxMonthlyHousingPayment = grossMonthlyIncome * maxHousingRatio;
var maxTotalMonthlyDebtAllowed = grossMonthlyIncome * maxTotalDebtRatio;
var maxMonthlyMortgagePayment = maxTotalMonthlyDebtAllowed – monthlyDebt;
// Ensure maxMonthlyMortgagePayment is not negative
if (maxMonthlyMortgagePayment 0 && monthlyInterestRate > 0 && numberOfPayments > 0) {
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1] => P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
maxLoanAmount = actualMaxMonthlyMortgagePayment * (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments));
}
var maxAffordableHomePrice = maxLoanAmount + downPayment;
// Calculate estimated monthly PITI (Principal, Interest, Taxes, Insurance, PMI)
var monthlyPrincipalAndInterest = 0;
if (maxLoanAmount > 0 && monthlyInterestRate > 0 && numberOfPayments > 0) {
monthlyPrincipalAndInterest = maxLoanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
}
var monthlyPropertyTaxes = propertyTaxes / 12;
var monthlyHomeInsurance = homeInsurance / 12;
var monthlyPMI = privateMortgageInsurance / 12;
var estimatedMonthlyPITI = monthlyPrincipalAndInterest + monthlyPropertyTaxes + monthlyHomeInsurance + monthlyPMI;
var estimatedTotalMonthlyDebt = estimatedMonthlyPITI + monthlyDebt;
resultDiv.innerHTML = "
Estimated Affordability:
" +
"Gross Monthly Income: $" + grossMonthlyIncome.toFixed(2) + "" +
"Maximum Estimated Monthly Housing Payment (PITI): $" + actualMaxMonthlyMortgagePayment.toFixed(2) + "" +
"Maximum Estimated Total Monthly Debt Payment: $" + maxTotalMonthlyDebtAllowed.toFixed(2) + "" +
"Estimated Maximum Loan Amount: $" + maxLoanAmount.toFixed(2) + "" +
"Estimated Maximum Affordable Home Price: $" + maxAffordableHomePrice.toFixed(2) + "" +
"(Based on estimated monthly PITI of $" + estimatedMonthlyPITI.toFixed(2) + " and total estimated monthly debt of $" + estimatedTotalMonthlyDebt.toFixed(2) + ")";
}