function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById('monthlyIncome').value);
var monthlyDebts = parseFloat(document.getElementById('monthlyDebts').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var annualRate = parseFloat(document.getElementById('interestRate').value);
var years = parseInt(document.getElementById('loanTerm').value);
var dti = parseFloat(document.getElementById('dtiRatio').value);
if (isNaN(annualIncome) || isNaN(monthlyDebts) || isNaN(downPayment) || isNaN(annualRate)) {
alert("Please enter valid numerical values.");
return;
}
// Calculations
var monthlyGrossIncome = annualIncome / 12;
// Allowable monthly payment for P&I, Taxes, Insurance (simplified calculation)
// Typically 28% for housing or 43% for total debt. We use the total DTI method.
var maxTotalMonthlyDebt = monthlyGrossIncome * dti;
var maxMonthlyHousingPayment = maxTotalMonthlyDebt – monthlyDebts;
// Estimate 1.2% annual property tax and $1000/year insurance
var estimatedTaxInsurance = (0.012 * (monthlyGrossIncome * 50) / 12) + 100;
var availableForPI = maxMonthlyHousingPayment – estimatedTaxInsurance;
if (availableForPI <= 0) {
document.getElementById('resultArea').style.display = 'block';
document.getElementById('maxPrice').innerHTML = "Check Budget";
document.getElementById('maxPrice').style.color = "#c62828";
document.getElementById('monthlyPI').innerHTML = "$0";
document.getElementById('totalLoan').innerHTML = "N/A";
return;
}
var monthlyRate = (annualRate / 100) / 12;
var numberOfPayments = years * 12;
// Solve for Principal: P = (M * (1 – (1 + r)^-n)) / r
var loanAmount = (availableForPI * (1 – Math.pow(1 + monthlyRate, -numberOfPayments))) / monthlyRate;
var totalHomePrice = loanAmount + downPayment;
// Format Currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById('resultArea').style.display = 'block';
document.getElementById('maxPrice').innerHTML = formatter.format(totalHomePrice);
document.getElementById('maxPrice').style.color = "#2e7d32";
document.getElementById('monthlyPI').innerHTML = formatter.format(availableForPI + estimatedTaxInsurance);
document.getElementById('totalLoan').innerHTML = formatter.format(loanAmount);
}
How to Determine Your Home Buying Budget
Buying a home is one of the most significant financial decisions you will ever make. While a bank might pre-approve you for a certain amount, understanding the math behind "how much house can I afford" is crucial for your long-term financial health.
The Debt-to-Income (DTI) Ratio Explained
Lenders primarily use the Debt-to-Income ratio to determine your borrowing capacity. This ratio compares your total monthly debt obligations (like car payments, student loans, and credit cards) against your gross monthly income. Most conventional lenders prefer a DTI ratio below 43%, though some programs allow up to 49% or 50%.
Key Factors Influencing Affordability
Annual Gross Income: Your total earnings before taxes. Lenders look for stability and history in this figure.
Down Payment: A larger down payment reduces your loan amount and can eliminate the need for Private Mortgage Insurance (PMI) if you reach 20%.
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.
Property Taxes & Insurance: These vary significantly by location and must be included in your monthly budget.
Practical Example
Suppose you earn $80,000 per year (approx. $6,666/month) and have $400 in monthly car payments. Using a moderate 43% DTI ratio, your total debt cap is $2,866. Subtracting your car payment leaves $2,466 for your mortgage, taxes, and insurance. With a $50,000 down payment and a 6.5% interest rate, you could likely afford a home priced around $350,000 to $380,000, depending on local tax rates.
Expert Tip: The 28/36 Rule
Many financial advisors suggest the 28/36 rule: your mortgage payment should not exceed 28% of your gross monthly income, and your total debt should not exceed 36%. Staying within these bounds ensures you have "breathing room" for home maintenance and savings.
Beyond the Mortgage Payment
Affordability isn't just about the monthly check to the bank. Remember to budget for:
Closing Costs: Typically 2-5% of the home's purchase price.
Maintenance: Expect to spend 1% of the home's value annually on repairs.
Utilities: Larger homes often come with higher heating, cooling, and water bills.