Determining how much house you can afford is a crucial first step in the home-buying process. Lenders will assess your ability to repay a loan based on several factors, but understanding these yourself beforehand can empower your search. This mortgage affordability calculator helps you estimate your potential borrowing power by considering your income, existing debts, down payment, and the estimated terms of the mortgage.
Key Factors in Mortgage Affordability:
Annual Income: This is the primary source of funds for making your monthly mortgage payments. Lenders typically look at your gross annual income (before taxes).
Existing Monthly Debt Payments: This includes recurring payments like car loans, student loans, credit card minimums, and any other installment loans. Lenders use these to calculate your debt-to-income ratio (DTI).
Down Payment: The larger your down payment, the less you need to borrow, which can lower your monthly payments and potentially help you avoid private mortgage insurance (PMI).
Interest Rate: A lower interest rate means a lower monthly payment for the same loan amount. Rates can fluctuate based on market conditions and your creditworthiness.
Loan Term: The length of your mortgage (e.g., 15, 20, or 30 years) significantly impacts your monthly payment. Shorter terms have higher payments but less interest paid overall, while longer terms have lower payments but more interest over time.
How the Calculator Works:
This calculator uses a common guideline for affordability. Lenders often assess affordability using two main debt-to-income ratios:
Front-End Ratio (or Housing Ratio): This ratio compares your potential total monthly housing expenses (principal, interest, taxes, insurance – PITI) to your gross monthly income. A common guideline is that PITI should not exceed 28% of your gross monthly income.
Back-End Ratio (or Total Debt Ratio): This ratio compares your total monthly debt obligations (including PITI) to your gross monthly income. A common guideline is that total debt should not exceed 36% of your gross monthly income.
This calculator estimates your maximum loan amount based on these ratios and then subtracts your down payment to suggest the maximum home price you might afford. Keep in mind that this is an estimation, and your actual borrowing power will be determined by a lender after a full review of your financial situation.
Example Calculation:
Let's say you have an Annual Income of $90,000. Your Existing Monthly Debt Payments total $500. You plan to make a Down Payment of $40,000. You're looking at an estimated Interest Rate of 6.5% for a 30-year Loan Term.
Using this calculator, you can input these figures to see an estimated maximum home price.
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");
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
var grossMonthlyIncome = annualIncome / 12;
var maxHousingPayment = grossMonthlyIncome * 0.28; // 28% front-end ratio
var maxTotalDebtPayment = grossMonthlyIncome * 0.36; // 36% back-end ratio
var maxAllowableMonthlyDebt = maxTotalDebtPayment – monthlyDebt;
// The more restrictive of the two ratios determines the maximum housing payment
var affordableMonthlyPayment = Math.min(maxHousingPayment, maxAllowableMonthlyDebt);
if (affordableMonthlyPayment 0) {
// Formula for present value of an annuity
maxLoanAmount = affordableMonthlyPayment * (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate;
} else {
// If interest rate is 0, loan amount is simply payment * number of payments
maxLoanAmount = affordableMonthlyPayment * numberOfPayments;
}
var estimatedMaxHomePrice = maxLoanAmount + downPayment;
if (isNaN(estimatedMaxHomePrice) || estimatedMaxHomePrice < 0) {
resultDiv.innerHTML = "Could not calculate affordability. Please check your inputs.";
return;
}
resultDiv.innerHTML = "Estimated Maximum Home Price You Can Afford: $" + estimatedMaxHomePrice.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,') + "" +
"Estimated Maximum Loan Amount: $" + maxLoanAmount.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,') + "";
}
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