Determine the home price you can comfortably afford based on your income and debts.
Your Estimated Purchasing Power
How Is Home Affordability Calculated?
Lenders primarily use the Debt-to-Income (DTI) ratio to determine how much they are willing to lend you. Most financial experts recommend the "28/36 rule," which suggests that your mortgage payment should not exceed 28% of your monthly gross income, and your total debt payments should not exceed 36%.
This calculator uses a balanced 36% DTI approach to find your maximum monthly "PITI" (Principal, Interest, Taxes, and Insurance) payment. By subtracting your existing debts, taxes, and insurance from this limit, we arrive at the amount available for the mortgage principal and interest, which then determines your total home price.
Example Calculation Breakdown
Suppose a household has the following financial profile:
Factor
Value
Annual Gross Income
$100,000 ($8,333/mo)
Monthly Debt Payments
$500
Max Monthly PITI (36% DTI)
$2,500 ($3,000 – $500)
Down Payment
$60,000
Interest Rate
7.0%
In this scenario, after accounting for taxes and insurance, the borrower might qualify for a home priced around $350,000 to $380,000, depending on local tax rates.
Key Factors Influencing Your Purchasing Power
Interest Rates: Even a 1% increase in interest rates can reduce your purchasing power by approximately 10%.
Credit Score: A higher credit score unlocks lower interest rates, allowing more of your monthly payment to go toward the principal.
Down Payment: A larger down payment directly increases the home price you can afford and may eliminate the need for Private Mortgage Insurance (PMI).
Local Property Taxes: High-tax areas reduce the amount of money available for your mortgage principal.
Conservative vs. Aggressive Borrowing
While a bank might approve you for a DTI up to 43% or even 50% for certain loan types (like FHA), borrowing at your absolute limit can lead to being "house poor." A conservative approach targets a DTI of 25-30%, ensuring you have enough leftover cash for maintenance, savings, and lifestyle expenses.
function calculateAffordability() {
var income = parseFloat(document.getElementById('grossIncome').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var debts = parseFloat(document.getElementById('monthlyDebts').value);
var rate = parseFloat(document.getElementById('interestRate').value);
var tax = parseFloat(document.getElementById('propertyTax').value);
var insurance = parseFloat(document.getElementById('homeInsurance').value);
if (isNaN(income) || isNaN(downPayment) || isNaN(debts) || isNaN(rate) || isNaN(tax) || isNaN(insurance)) {
alert("Please enter valid numeric values in all fields.");
return;
}
var monthlyGross = income / 12;
var monthlyTax = tax / 12;
var monthlyInsurance = insurance / 12;
// Using a 36% Debt-To-Income Ratio as the benchmark
var totalAllowedMonthlyDebt = monthlyGross * 0.36;
var availableForPITI = totalAllowedMonthlyDebt – debts;
var availableForPI = availableForPITI – monthlyTax – monthlyInsurance;
if (availableForPI <= 0) {
document.getElementById('resultBox').style.display = "block";
document.getElementById('maxHomePrice').innerHTML = "Ineligible";
document.getElementById('resultBreakdown').innerHTML = "Based on your current income and debt levels, your monthly expenses exceed the recommended 36% debt-to-income ratio. Consider reducing debts or increasing down payment.";
return;
}
// Mortgage Formula: Loan = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// Reversed to find Loan: P = MonthlyPI / [ (i(1+i)^n) / ((1+i)^n – 1) ]
var monthlyRate = (rate / 100) / 12;
var numPayments = 360; // 30-year fixed
var factor = (monthlyRate * Math.pow(1 + monthlyRate, numPayments)) / (Math.pow(1 + monthlyRate, numPayments) – 1);
var loanAmount = availableForPI / factor;
var homePrice = loanAmount + downPayment;
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById('resultBox').style.display = "block";
document.getElementById('maxHomePrice').innerHTML = formatter.format(homePrice);
document.getElementById('resultBreakdown').innerHTML =
"Loan Amount: " + formatter.format(loanAmount) + "" +
"Down Payment: " + formatter.format(downPayment) + "" +
"Max Monthly P&I: " + formatter.format(availableForPI) + "" +
"Total Monthly PITI: " + formatter.format(availableForPITI) + "" +
"This estimate is based on a 30-year fixed-rate mortgage with a 36% debt-to-income ratio.";
document.getElementById('resultBox').scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}