Before you start browsing listings, it is critical to understand exactly how much home you can afford. Our Home Affordability Calculator uses the Debt-to-Income (DTI) ratio, which is the same metric lenders use to determine your creditworthiness.
How Home Affordability is Calculated
The primary rule used by most financial institutions is the 36% Rule. This guideline suggests that your total monthly debt payments—including your new mortgage, property taxes, and insurance—should not exceed 36% of your gross monthly income.
For example, if your household earns $85,000 annually, your gross monthly income is approximately $7,083. Under the 36% rule, your total monthly debt limit is $2,550. If you already have a $400 car payment, you have $2,150 remaining for your housing costs.
Key Factors That Influence Affordability
Gross Income: Your total earnings before taxes. Lenders look at the stability and history of this income.
Existing Debt: Student loans, car notes, and credit card minimums reduce the amount you can borrow for a home.
Down Payment: The more cash you put down, the lower your loan amount and monthly interest costs will be.
Interest Rates: Even a 1% difference in interest rates can swing your buying power by tens of thousands of dollars.
Property Taxes & Insurance: These vary significantly by location and must be included in your monthly budget.
Example Scenario
Imagine a couple earning $100,000 per year with $500 in monthly student loan debt and $60,000 saved for a down payment. At a 7% interest rate, they might qualify for a home priced around $425,000. However, if they reduced their monthly debt to $0, their buying power could jump to nearly $495,000.
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 termYears = parseFloat(document.getElementById('loanTerm').value);
var monthlyTaxIns = parseFloat(document.getElementById('propertyTax').value);
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(annualRate) || isNaN(termYears) || isNaN(monthlyTaxIns)) {
alert("Please enter valid numeric values for all fields.");
return;
}
// Standard DTI limit (conservative 36%)
var monthlyGross = annualIncome / 12;
var maxTotalMonthlyDebt = monthlyGross * 0.36;
// Amount available specifically for Mortgage Principal + Interest
var availableForPI = maxTotalMonthlyDebt – monthlyDebt – monthlyTaxIns;
if (availableForPI <= 0) {
document.getElementById('result').style.display = "block";
document.getElementById('maxPrice').innerHTML = "Insufficient Income";
document.getElementById('monthlyBreakdown').innerHTML = "Your current monthly debts and taxes exceed the recommended 36% DTI ratio.";
return;
}
// Mortgage Formula: P = M * [ (1 + i)^n – 1 ] / [ i(1 + i)^n ]
var monthlyRate = (annualRate / 100) / 12;
var numberOfPayments = termYears * 12;
var loanAmount = availableForPI * (Math.pow(1 + monthlyRate, numberOfPayments) – 1) / (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments));
var totalHomePrice = loanAmount + downPayment;
// Formatting
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById('result').style.display = "block";
document.getElementById('maxPrice').innerText = formatter.format(totalHomePrice);
document.getElementById('monthlyBreakdown').innerHTML =
"Estimated Loan: " + formatter.format(loanAmount) + "" +
"Estimated Monthly Principal & Interest: " + formatter.format(availableForPI) + "" +
"Total Estimated Monthly Payment (PITI): " + formatter.format(availableForPI + monthlyTaxIns);
}