Mortgage Affordability Calculator
Financial Inputs
Results
Based on a 36% Back-End DTI ratio (standard conservative limit).
How Much House Can I Actually Afford?
Determine your budget before you start house hunting is the most critical step in the home buying process. This Mortgage Affordability Calculator helps you estimate a realistic home price based on your income, existing debts, and current mortgage interest rates. Unlike simple repayment calculators, this tool considers your Debt-to-Income (DTI) ratio, which is the primary metric lenders use to approve mortgages.
Understanding the Calculation Logic
Lenders typically look at two specific ratios to determine affordability:
- Front-End Ratio (28% Rule): Historically, financial advisors suggest that your housing costs (principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.
- Back-End Ratio (36% Rule): This is often more critical. It states that your total monthly debt payments (housing costs + credit cards + student loans + car notes) should not exceed 36% of your gross monthly income.
This calculator determines the maximum monthly payment allowed under both rules and uses the lower (more conservative) number to ensure you don't overextend yourself.
Key Factors Affecting Your Affordability
1. Interest Rates
Your interest rate significantly impacts your buying power. Even a 1% increase in rates can reduce your buying power by tens of thousands of dollars. Since interest payments make up a large portion of your monthly payment in the early years of a mortgage, securing a lower rate helps you afford a more expensive home for the same monthly cost.
2. Down Payment
A larger down payment does two things: it reduces the loan amount you need (lowering monthly payments) and directly increases the maximum home price you can purchase. If you put down less than 20%, remember that lenders may require Private Mortgage Insurance (PMI), which isn't calculated here but would further reduce your buying power.
3. Property Taxes and Insurance
Many buyers forget to factor in property taxes and homeowners insurance. These costs are usually bundled into your monthly mortgage payment (escrow). In high-tax areas, a significant portion of your monthly budget goes to taxes rather than equity, reducing the loan amount you can support.
How to Improve Your Affordability
If the result from the calculator is lower than home prices in your target area, consider these strategies:
- Pay down existing debt: Reducing your monthly credit card or car payments lowers your DTI, directly increasing the amount available for a mortgage.
- Save for a larger down payment: This reduces the principal loan amount and instant equity.
- Shop for lower insurance rates: Bundling home and auto insurance can save money that can be redirected to your mortgage.
Disclaimer: This calculator is for educational purposes only and provides an estimate. Actual qualification depends on credit score, employment history, and current lender guidelines (FHA, VA, and USDA loans have different DTI thresholds).