Understanding how much mortgage you can afford is a crucial step in the home-buying process. This calculator helps you estimate your borrowing capacity based on your income, debts, and desired mortgage terms. Remember, this is an estimate, and your actual mortgage approval will depend on lender-specific criteria and a full financial assessment.
How Mortgage Affordability is Calculated
Lenders typically use a debt-to-income (DTI) ratio to determine how much mortgage you can afford. There are two common DTI ratios:
Front-End Ratio (Housing Ratio): This ratio looks at your potential housing costs (principal, interest, taxes, and insurance – PITI) and compares it to your gross monthly income. Many lenders prefer this to be around 28% or lower.
Back-End Ratio (Total Debt Ratio): This ratio considers all your monthly debt obligations, including your potential PITI, and compares it to your gross monthly income. Lenders often aim for this to be around 36% or lower, though it can sometimes go up to 43% or higher depending on your creditworthiness and other factors.
This calculator primarily focuses on the back-end ratio to provide a conservative estimate of affordability. It calculates the maximum monthly mortgage payment you could afford, then uses that to estimate the maximum loan amount you could borrow after accounting for your down payment.
Key Factors:
Annual Gross Income: Your total income before taxes and deductions.
Monthly Debt Payments: Existing monthly payments for car loans, student loans, credit cards, etc.
Down Payment: The amount of money you're putting down upfront. A larger down payment reduces the loan amount needed.
Interest Rate: The annual interest rate on the mortgage. Higher rates mean higher monthly payments for the same loan amount.
Loan Term: The duration of the mortgage (e.g., 15, 20, or 30 years). Longer terms result in lower monthly payments but more interest paid over time.
Important Note: This calculator provides an estimate. Actual mortgage approval depends on your credit score, lender policies, and a comprehensive 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);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultElement = document.getElementById("result");
resultElement.innerHTML = ""; // Clear previous results
if (isNaN(annualIncome) || isNaN(monthlyDebtPayments) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultElement.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (annualIncome <= 0 || monthlyDebtPayments < 0 || downPayment < 0 || interestRate <= 0 || loanTerm <= 0) {
resultElement.innerHTML = "Please enter valid positive numbers where applicable.";
return;
}
// Assume a maximum DTI ratio (e.g., 36% back-end) – this can be adjusted
var maxDTI = 0.36;
var grossMonthlyIncome = annualIncome / 12;
// Calculate maximum total monthly debt allowed
var maxTotalMonthlyDebt = grossMonthlyIncome * maxDTI;
// Calculate maximum affordable mortgage payment
var maxMortgagePayment = maxTotalMonthlyDebt – monthlyDebtPayments;
// Ensure maxMortgagePayment is not negative
if (maxMortgagePayment 0) {
// Formula for present value of an annuity
// PV = PMT * [1 – (1 + r)^-n] / r
maxLoanAmount = maxMortgagePayment * (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate;
} else {
// If interest rate is 0, loan amount is simply payment * number of payments
maxLoanAmount = maxMortgagePayment * numberOfPayments;
}
// Calculate the maximum home price
var maxHomePrice = maxLoanAmount + downPayment;
resultElement.innerHTML = "