Buying a home is a significant financial decision, and understanding how much mortgage you can realistically afford is crucial.
Lenders typically consider a few key ratios when determining loan approval and the maximum amount they're willing to lend.
The two most common ratios are the Debt-to-Income (DTI) ratio and the Front-End DTI (also known as the Housing Ratio).
Debt-to-Income (DTI) Ratio
Your DTI ratio compares your total monthly debt payments to your gross monthly income. It shows lenders how much of your income
is already committed to existing debts. A lower DTI ratio is generally preferred by lenders, indicating you have more disposable income.
There are two common DTI calculations:
Front-End DTI (Housing Ratio): This ratio includes only your proposed housing expenses (principal, interest, property taxes, homeowner's insurance, and potentially HOA fees and PMI) relative to your gross monthly income. Lenders often prefer this to be no higher than 28%.
Back-End DTI (Total Debt Ratio): This ratio includes all your monthly debt obligations: the proposed housing expenses PLUS your other recurring monthly debts like car loans, student loans, and credit card payments, relative to your gross monthly income. Lenders typically prefer this to be no higher than 36%, though some may go up to 43% or even higher depending on other factors.
How the Mortgage Affordability Calculator Works
This calculator helps you estimate your maximum affordable mortgage based on common lending guidelines.
It takes into account your annual household income, existing monthly debt payments, your available down payment, and estimated costs associated with homeownership like interest rates, loan terms, property taxes, homeowner's insurance, and private mortgage insurance (PMI).
The calculator estimates your maximum affordable monthly payment by considering typical DTI limits. It then uses this maximum monthly payment to determine the principal loan amount you can borrow. Remember, this is an estimate, and your actual borrowing capacity will depend on the specific lender, your credit score, the current market conditions, and other underwriting factors.
Key Factors to Consider:
Annual Household Income: The total income earned by all individuals who will be on the mortgage application.
Total Monthly Debt Payments: This includes minimum payments for credit cards, student loans, auto loans, personal loans, and any other recurring debt. It does not include utilities or everyday living expenses.
Down Payment: The amount of cash you're putting towards the purchase price of the home. A larger down payment reduces the loan amount needed and can improve your borrowing terms.
Interest Rate: The annual interest rate you expect to pay on the mortgage. This significantly impacts your monthly payment.
Loan Term: The number of years you'll have to repay the loan (commonly 15 or 30 years). A shorter term means higher monthly payments but less interest paid over time.
Property Taxes: Annual taxes assessed by your local government on the value of your property.
Homeowner's Insurance: Insurance that protects your home against damage from events like fire, theft, and natural disasters.
Private Mortgage Insurance (PMI): Required by lenders if your down payment is less than 20% of the home's purchase price. It protects the lender, not you.
Use this calculator as a starting point to understand your potential home-buying power. It's always recommended to speak with a mortgage professional for personalized advice and pre-approval.
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 propertyTaxes = parseFloat(document.getElementById("propertyTaxes").value);
var homeInsurance = parseFloat(document.getElementById("homeInsurance").value);
var pmi = parseFloat(document.getElementById("pmi").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// Basic validation
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm) || isNaN(propertyTaxes) || isNaN(homeInsurance) || isNaN(pmi)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (annualIncome <= 0 || monthlyDebt < 0 || downPayment < 0 || interestRate < 0 || loanTerm <= 0 || propertyTaxes < 0 || homeInsurance < 0 || pmi < 0) {
resultDiv.innerHTML = "Please enter positive values for income, loan term, and non-negative values for others.";
return;
}
var monthlyIncome = annualIncome / 12;
// LTV and PMI calculation (simplified)
var maxLoanToValueRatio = 0.97; // Assumes at least 3% down payment for calculation purposes, PMI is calculated separately
var maxHousingPaymentRatio = 0.28; // Front-end DTI limit
var maxTotalDebtRatio = 0.36; // Back-end DTI limit
// Calculate maximum allowed total monthly debt payment
var maxTotalMonthlyDebt = monthlyIncome * maxTotalDebtRatio;
// Calculate maximum allowed monthly debt payments excluding proposed housing
var maxAllowedHousingPayment = maxTotalMonthlyDebt – monthlyDebt;
// Ensure maxAllowedHousingPayment is not negative (meaning existing debts already exceed limits)
if (maxAllowedHousingPayment < 0) {
resultDiv.innerHTML = "Your current debt payments are too high to afford a new mortgage based on a 36% DTI ratio.";
return;
}
var monthlyPropertyTaxes = propertyTaxes / 12;
var monthlyHomeInsurance = homeInsurance / 12;
var monthlyPmi = pmi / 12;
var estimatedMaxMortgagePayment = maxAllowedHousingPayment;
// Now we need to back-calculate the loan amount based on the estimatedMaxMortgagePayment
// The formula for monthly mortgage payment (P&I) is: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// Where:
// M = Monthly Payment (P&I)
// P = Principal Loan Amount
// i = monthly interest rate (annual rate / 12)
// n = total number of payments (loan term in years * 12)
// We need to rearrange this to solve for P (Principal Loan Amount)
// P = M * [ (1 + i)^n – 1] / [ i(1 + i)^n ]
var monthlyInterestRate = (interestRate / 100) / 12;
var numberOfPayments = loanTerm * 12;
var principalLoanAmount = 0;
// Calculate P&I portion of the maximum housing payment
// We need to isolate the P&I payment from the total housing payment
// Total Housing Payment = P&I + Taxes + Insurance + PMI
// P&I = Total Housing Payment – Taxes – Insurance – PMI
var maxPiPayment = estimatedMaxMortgagePayment – monthlyPropertyTaxes – monthlyHomeInsurance – monthlyPmi;
if (maxPiPayment 0 && numberOfPayments > 0) {
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
if (denominator > 0) {
principalLoanAmount = maxPiPayment * (numerator / denominator);
} else {
principalLoanAmount = 0; // Avoid division by zero if rate or term is zero in edge cases
}
} else if (monthlyInterestRate === 0) { // Handle 0% interest rate scenario
principalLoanAmount = maxPiPayment * numberOfPayments;
}
var maxHomePrice = principalLoanAmount + downPayment;
// Display results
resultDiv.innerHTML += "