Determining your home buying budget is the most critical step in the real estate journey. While a bank might pre-approve you for a high amount, understanding the "why" behind the numbers helps ensure you remain "house happy" rather than "house poor." Our calculator uses the industry-standard debt-to-income (DTI) ratios to estimate your maximum purchase price.
The 28/36 Rule Explained
Lenders typically use two primary benchmarks to determine affordability:
Front-End Ratio (28%): Your total monthly housing costs (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income.
Back-End Ratio (36%): Your total monthly debt payments (housing costs + car loans, student loans, credit cards) should not exceed 36% of your gross monthly income.
Real-Life Example:
If your household earns $100,000 annually, your gross monthly income is $8,333.
Applying the 36% rule, your total monthly debt (including the new mortgage) shouldn't exceed $3,000.
If you already pay $500/month for a car loan, your maximum mortgage payment (PITI) would be roughly $2,500.
Factors That Influence Your Budget
Several variables outside of your salary impact how much home you can buy:
Interest Rates: A 1% increase in interest rates can reduce your buying power by approximately 10%.
Down Payment: A larger down payment reduces your loan amount and can eliminate the need for Private Mortgage Insurance (PMI).
Credit Score: Higher scores qualify you for lower interest rates, significantly lowering your monthly payment.
Property Taxes & Insurance: These vary wildly by location. A $400,000 home in Texas may cost more monthly than a $500,000 home in a lower-tax state.
Tips for Increasing Affordability
If the results are lower than expected, consider paying down high-interest debt to lower your DTI ratio. Additionally, saving for a larger down payment or improving your credit score before applying can yield substantial savings over the life of a 30-year loan.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById('annualIncome').value);
var monthlyDebt = parseFloat(document.getElementById('monthlyDebt').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var annualRate = parseFloat(document.getElementById('interestRate').value);
var loanTermYears = parseFloat(document.getElementById('loanTerm').value);
var taxRateAnnual = parseFloat(document.getElementById('propertyTax').value);
var resultDiv = document.getElementById('affordabilityResult');
// Validation
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(annualRate)) {
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#fff3f3';
resultDiv.style.border = '1px solid #ffcdd2';
resultDiv.innerHTML = "Please enter valid numerical values for all required fields.";
return;
}
// Calculation Logic
var monthlyGrossIncome = annualIncome / 12;
// 36% Back-end DTI rule is standard for conservative affordability
var maxTotalMonthlyDebt = monthlyGrossIncome * 0.36;
var maxMonthlyHousingPayment = maxTotalMonthlyDebt – monthlyDebt;
// Estimated insurance (roughly 0.35% of home value annually, simplified)
var estimatedInsuranceRateMonthly = (0.0035 / 12);
var monthlyTaxRate = (taxRateAnnual / 100) / 12;
var monthlyInterestRate = (annualRate / 100) / 12;
var numberOfPayments = loanTermYears * 12;
// Mortgage Formula: P = L [ c(1 + c)^n ] / [ (1 + c)^n – 1 ]
// We need to solve for L, considering Taxes and Insurance are part of the Max Payment.
// MaxPayment = L * [factor] + HomePrice * (MonthlyTax + MonthlyInsurance)
// Since HomePrice = L + DownPayment:
// MaxPayment = L * [factor] + (L + DownPayment) * (Tax + Insurance)
var mortgageFactor = (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
// Algebra: MaxPayment = L * (mortgageFactor + monthlyTaxRate + estimatedInsuranceRateMonthly) + DownPayment * (monthlyTaxRate + estimatedInsuranceRateMonthly)
var numerator = maxMonthlyHousingPayment – (downPayment * (monthlyTaxRate + estimatedInsuranceRateMonthly));
var denominator = mortgageFactor + monthlyTaxRate + estimatedInsuranceRateMonthly;
var loanAmount = numerator / denominator;
if (loanAmount <= 0) {
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#fff3f3';
resultDiv.style.border = '1px solid #ffcdd2';
resultDiv.innerHTML = "Result: Based on your current debts and income, your debt-to-income ratio is too high to qualify for a standard mortgage. Consider reducing monthly debts or increasing your down payment.";
return;
}
var totalHomePrice = loanAmount + downPayment;
var monthlyPI = loanAmount * mortgageFactor;
var monthlyTax = totalHomePrice * monthlyTaxRate;
var monthlyIns = totalHomePrice * estimatedInsuranceRateMonthly;
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#e3f2fd';
resultDiv.style.border = '1px solid #bbdefb';
resultDiv.innerHTML =
"