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, often referred to as your debt-to-income (DTI) ratio. This calculator helps you estimate your potential mortgage affordability based on your income, existing debts, down payment, and estimated mortgage terms.
Key Factors for Mortgage Affordability:
Annual Income: Your total earnings before taxes are a primary indicator of your ability to handle loan repayments.
Monthly Debt Payments: Lenders consider your existing financial obligations, such as credit card payments, car loans, and student loans. These are subtracted from your gross income to determine how much is left for a mortgage.
Down Payment: A larger down payment reduces the amount you need to borrow, lowering your loan-to-value (LTV) ratio and potentially making it easier to qualify for a loan.
Interest Rate: The annual interest rate significantly impacts your monthly payment and the total cost of the loan over its lifetime.
Loan Term: The duration of the mortgage (e.g., 15, 30 years) affects your monthly payments. Shorter terms mean higher monthly payments but less interest paid overall.
How Lenders Assess Affordability (The 28/36 Rule):
A common rule of thumb used by lenders is the 28/36 rule:
Front-End Ratio (28%): Your total housing costs (principal, interest, taxes, insurance – PITI) should not exceed 28% of your gross monthly income.
Back-End Ratio (36%): Your total monthly debt obligations (including the potential mortgage payment) should not exceed 36% of your gross monthly income.
This calculator uses a simplified approach focusing on the back-end ratio to estimate maximum affordable mortgage. It's important to note that this is an estimate, and actual loan approval depends on many other factors, including your credit score, employment history, and lender-specific policies.
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 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;
}
// Assuming a maximum DTI ratio of 36% for total debt
var maxTotalDebtRatio = 0.36;
var grossMonthlyIncome = annualIncome / 12;
var maxAllowedMonthlyDebt = grossMonthlyIncome * maxTotalDebtRatio;
var maxMonthlyMortgagePayment = maxAllowedMonthlyDebt – monthlyDebt;
if (maxMonthlyMortgagePayment 0 && numberOfPayments > 0) {
var factor = Math.pow(1 + monthlyInterestRate, numberOfPayments);
maxLoanAmount = maxMonthlyMortgagePayment * (factor – 1) / (monthlyInterestRate * factor);
} else if (numberOfPayments > 0) { // Handles 0% interest rate scenario (though unlikely for mortgages)
maxLoanAmount = maxMonthlyMortgagePayment * numberOfPayments;
}
var maxAffordableHomePrice = maxLoanAmount + downPayment;
// Display the results
resultDiv.innerHTML = "Estimated maximum affordable mortgage loan amount: $" + maxLoanAmount.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",") + "";
resultDiv.innerHTML += "Estimated maximum affordable home price (with your down payment): $" + maxAffordableHomePrice.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",") + "";
}