Estimate the home price you can afford based on your income and debts.
Estimated Home Budget:
How Much House Can I Afford?
Determining your home buying budget is the most critical step in the real estate journey. Lenders typically use the Debt-to-Income (DTI) ratio to decide how much they are willing to lend you. This calculator helps you estimate your purchase power using the "Front-End" and "Back-End" ratio principles used by major financial institutions.
Understanding the 28/36 Rule
A common rule of thumb in mortgage lending is the 28/36 rule:
28%: Your total monthly mortgage payment (including taxes and insurance) should not exceed 28% of your gross monthly income.
36%: Your total debt obligations (mortgage plus car loans, student loans, and credit card debt) should not exceed 36% of your gross monthly income.
Factors That Affect Your Home Budget
Several variables impact the final number you see in the calculator above:
Interest Rates: Even a 1% increase in interest rates can reduce your purchasing power by tens of thousands of dollars because more of your monthly payment goes toward interest rather than principal.
Down Payment: A larger down payment reduces the loan amount, which lowers your monthly interest cost and may eliminate the need for Private Mortgage Insurance (PMI).
Property Taxes & Insurance: These are non-negotiable costs added to your monthly payment. Areas with high property taxes will significantly lower the total home price you can afford.
Credit Score: While not an input in this simple calculator, your credit score determines the interest rate you receive.
Example Calculation
Imagine a household with an Annual Income of $100,000 and $500 in monthly debts. With a $50,000 down payment and a 7% interest rate over 30 years:
Monthly Gross Income: $8,333
Max Monthly Debt (36%): $3,000
Available for Mortgage: $3,000 – $500 = $2,500/month
Resulting Home Price: Approximately $425,000 (depending on local taxes).
Conclusion
Before putting in an offer, always get pre-approved by a lender. While this calculator provides a data-driven estimate, a lender will look at your credit history, employment stability, and liquid assets to provide a final loan commitment.
function calculateHomeAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var propertyTaxRate = parseFloat(document.getElementById("propertyTax").value);
if (isNaN(annualIncome) || isNaN(interestRate) || isNaN(loanTerm)) {
alert("Please enter valid numbers in the required fields.");
return;
}
// Calculation Constants
var monthlyGrossIncome = annualIncome / 12;
// Using a 36% Back-End DTI ratio for a balanced estimation
var maxTotalMonthlyDebt = monthlyGrossIncome * 0.36;
var maxMonthlyHousingPayment = maxTotalMonthlyDebt – monthlyDebt;
// Adjust for estimated insurance and taxes (approx 1.5% of value annually divided by 12)
// Formula: Max Payment = [P * (i(1+i)^n) / ((1+i)^n – 1)] + (HomePrice * TaxRate / 12) + Insurance
// Simplified for reverse engineering:
var monthlyRate = (interestRate / 100) / 12;
var numPayments = loanTerm * 12;
var monthlyTaxAndInsFactor = (propertyTaxRate / 100) / 12;
if (maxMonthlyHousingPayment <= 0) {
document.getElementById("affordResult").style.display = "block";
document.getElementById("maxHomePrice").innerText = "$0";
document.getElementById("monthlyBreakdown").innerText = "Monthly debts exceed the recommended 36% debt-to-income ratio.";
return;
}
// Solving for Principal P:
// M = P * [r(1+r)^n / ((1+r)^n – 1)] + P * TaxFactor
// P = M / ([r(1+r)^n / ((1+r)^n – 1)] + TaxFactor)
var mortgageFactor = (monthlyRate * Math.pow(1 + monthlyRate, numPayments)) / (Math.pow(1 + monthlyRate, numPayments) – 1);
var estimatedLoanAmount = maxMonthlyHousingPayment / (mortgageFactor + monthlyTaxAndInsFactor);
var estimatedHomePrice = estimatedLoanAmount + downPayment;
// Formatting
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById("affordResult").style.display = "block";
document.getElementById("maxHomePrice").innerText = formatter.format(estimatedHomePrice);
document.getElementById("monthlyBreakdown").innerText = "Based on a maximum monthly payment of " + formatter.format(maxMonthlyHousingPayment) + " (Principal, Interest, Taxes & Insurance).";
// Scroll to result
document.getElementById("affordResult").scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}