Home Affordability Calculator
30-Year Fixed
20-Year Fixed
15-Year Fixed
10-Year Fixed
Estimated Max Home Price
$0
Monthly Payment (P&I)
$0
Total Loan Amount
$0
DTI Ratio
0%
How Is Home Affordability Calculated?
Determining "how much house you can afford" involves more than just looking at your bank account. Lenders primarily use the 28/36 Rule to assess your borrowing capacity. This rule suggests that your mortgage payment should not exceed 28% of your gross monthly income, and your total debt obligations (including the new mortgage) should not exceed 36%.
Key Factors Influencing Your Budget
- Gross Annual Income: This is your total income before taxes. Lenders use this as the starting point for all debt-to-income (DTI) calculations.
- Debt-to-Income Ratio (DTI): This is the percentage of your monthly income that goes toward paying debts. A lower DTI usually qualifies you for better interest rates and higher loan amounts.
- Down Payment: The more you put down upfront, the lower your monthly loan payment will be, and the higher the home price you can target.
- Interest Rates: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars over a 30-year term.
Real-World Example Calculation
Suppose your household earns $100,000 per year. Your gross monthly income is $8,333. Using the 28% rule, your maximum monthly housing payment (including taxes and insurance) should be approximately $2,333.
If you have $500 in existing monthly debts (like a car payment), your total debt-to-income limit (36%) would be $3,000. Since $2,333 (housing) + $500 (debt) = $2,833, you are well within the 36% limit. Based on a 6.5% interest rate and a $20,000 down payment, you could likely afford a home priced around $335,000.
Tips to Increase Your Affordability
If the calculator shows a lower number than you hoped, consider these strategies: 1. Reduce your existing monthly recurring debts. 2. Improve your credit score to secure a lower interest rate. 3. Save for a larger down payment to reduce the total interest paid over the life of the loan.