Determining "how much house can I afford" is the critical first step in the home buying journey. Instead of falling in love with a property that breaks your budget, this calculator helps you establish a realistic price range based on your financial health. Lenders look at specific ratios to determine risk, and understanding these can help you position yourself for approval.
The Debt-to-Income (DTI) Ratios Explained
This calculator uses the standard 28/36 rule, which is widely used by mortgage lenders to determine affordability:
Front-End Ratio (28%): This rule states that your monthly housing costs (principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.
Back-End Ratio (36%): This rule states that your total monthly debt payments (housing costs + credit cards, car loans, student loans, etc.) should not exceed 36% of your gross monthly income.
Our calculator computes both scenarios and uses the lower number to ensure you don't overextend yourself financially.
Key Factors Affecting Affordability
Several variables impact your maximum home price:
Interest Rate: Even a small increase in rates significantly increases your monthly payment, reducing your overall purchasing power.
Down Payment: A larger down payment reduces the loan amount required, allowing you to afford a more expensive home for the same monthly payment.
Monthly Debts: Reducing high-interest credit card debt or paying off a car loan before applying for a mortgage can drastically improve your Back-End DTI ratio.
Loan Term: A 30-year term offers lower monthly payments than a 15-year term, potentially allowing you to qualify for a higher loan amount, though you will pay more interest over the life of the loan.
How to Improve Your Affordability
If the result isn't quite what you hoped for, consider these strategies: pay down existing consumer debt to free up monthly cash flow, save for a larger down payment to reduce the principal, or shop around for lower interest rates. Additionally, consider properties with lower property taxes or HOA fees, as these are fixed costs that lenders count against your monthly budget.
function calculateAffordability() {
// Get Input Values
var annualIncome = parseFloat(document.getElementById("grossIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTerm").value);
var estTaxes = parseFloat(document.getElementById("estTaxes").value);
// Validation
if (isNaN(annualIncome) || isNaN(interestRate) || isNaN(loanTermYears)) {
alert("Please enter valid numbers for Income, Interest Rate, and Loan Term.");
return;
}
// Handle optional fields as 0 if empty
if (isNaN(monthlyDebt)) monthlyDebt = 0;
if (isNaN(downPayment)) downPayment = 0;
if (isNaN(estTaxes)) estTaxes = 0;
// Calculate Monthly Income
var monthlyIncome = annualIncome / 12;
// Front-End Ratio Calculation (Housing Only – 28%)
var maxHousingPaymentFront = monthlyIncome * 0.28;
// Back-End Ratio Calculation (Total Debt – 36%)
// Total allowed debt payment minus existing non-housing debt
var maxTotalDebtPayment = monthlyIncome * 0.36;
var maxHousingPaymentBack = maxTotalDebtPayment – monthlyDebt;
// Determine the limiting factor (Conservative approach: take the lower of the two)
var maxAllowableHousingPayment = Math.min(maxHousingPaymentFront, maxHousingPaymentBack);
// Ensure result isn't negative if debts are too high
if (maxAllowableHousingPayment < 0) maxAllowableHousingPayment = 0;
// Calculate Principal & Interest (P&I) Budget
// Max Payment minus Taxes/Insurance
var maxPIPayment = maxAllowableHousingPayment – estTaxes;
if (maxPIPayment < 0) maxPIPayment = 0;
// Calculate Max Loan Amount based on P&I Budget
// Formula: P = (M * (1 – (1 + r)^-n)) / r
var r = (interestRate / 100) / 12; // Monthly interest rate
var n = loanTermYears * 12; // Total number of payments
var maxLoanAmount = 0;
if (r === 0) {
maxLoanAmount = maxPIPayment * n;
} else {
maxLoanAmount = (maxPIPayment * (1 – Math.pow(1 + r, -n))) / r;
}
// Calculate Max Home Price
var maxHomePrice = maxLoanAmount + downPayment;
// Formatting Helpers
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
// Update DOM
document.getElementById("maxHomePrice").innerText = formatter.format(maxHomePrice);
document.getElementById("loanAmount").innerText = formatter.format(maxLoanAmount);
document.getElementById("monthlyPayment").innerText = formatter.format(maxAllowableHousingPayment);
// Show context numbers
document.getElementById("frontEndDTI").innerText = "Max Budget: " + formatter.format(maxHousingPaymentFront) + "/mo";
document.getElementById("backEndDTI").innerText = "Max Budget: " + formatter.format(maxHousingPaymentBack) + "/mo";
// Show Results Container
document.getElementById("resultContainer").classList.add("visible");
}