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Home Affordability Calculator

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Results Summary

Recommended Home Price: $0

Estimated Monthly P&I Payment: $0

Total Loan Amount: $0

*This estimate excludes property taxes, PMI, and homeowner's insurance.

function calculateHomeAffordability() { var annualIncome = parseFloat(document.getElementById("annualIncome").value); var monthlyDebts = parseFloat(document.getElementById("monthlyDebts").value); var downPayment = parseFloat(document.getElementById("downPayment").value); var annualRate = parseFloat(document.getElementById("interestRate").value); var loanTermYears = parseInt(document.getElementById("loanTerm").value); var dtiLimit = parseFloat(document.getElementById("dtiLimit").value); if (isNaN(annualIncome) || isNaN(monthlyDebts) || isNaN(downPayment) || isNaN(annualRate)) { alert("Please enter valid numeric values."); return; } var monthlyGrossIncome = annualIncome / 12; var maxAllowedMonthlyPayment = (monthlyGrossIncome * (dtiLimit / 100)) – monthlyDebts; if (maxAllowedMonthlyPayment <= 0) { document.getElementById("affordabilityResult").style.display = "block"; document.getElementById("resHomePrice").innerText = "Insufficient Income"; document.getElementById("resMonthlyPayment").innerText = "$0"; document.getElementById("resLoanAmount").innerText = "$0"; return; } var monthlyRate = (annualRate / 100) / 12; var numberOfPayments = loanTermYears * 12; var loanAmount = maxAllowedMonthlyPayment * (1 – Math.pow(1 + monthlyRate, -numberOfPayments)) / monthlyRate; var homePrice = loanAmount + downPayment; document.getElementById("resHomePrice").innerText = "$" + Math.round(homePrice).toLocaleString(); document.getElementById("resMonthlyPayment").innerText = "$" + Math.round(maxAllowedMonthlyPayment).toLocaleString(); document.getElementById("resLoanAmount").innerText = "$" + Math.round(loanAmount).toLocaleString(); document.getElementById("affordabilityResult").style.display = "block"; }

How Much House Can I Afford? A Complete Guide

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 math behind "affordability" ensures you don't become "house poor."

The 28/36 Rule Explained

Financial advisors often use the 28/36 rule to determine home affordability. This rule suggests that:

  • 28%: Your total housing expenses (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income.
  • 36%: Your total debt obligations (including the new mortgage, car loans, student loans, and credit cards) should not exceed 36% of your gross monthly income.

Our calculator focuses on the Debt-to-Income (DTI) ratio, which is the primary metric lenders use to assess your ability to manage monthly payments.

Key Factors That Influence Your Budget

1. Your Down Payment

The larger your down payment, the lower your monthly loan payment will be. While 20% is the gold standard to avoid Private Mortgage Insurance (PMI), many first-time homebuyer programs allow as little as 3% or 3.5% down.

2. Interest Rates

Even a 1% difference in interest rates can change your buying power by tens of thousands of dollars. Higher rates increase the cost of borrowing, which lowers the maximum loan amount you can afford for the same monthly payment.

3. Loan Term

A 15-year mortgage usually offers lower interest rates but requires much higher monthly payments. A 30-year mortgage is the most common choice because it lowers the monthly obligation, allowing you to qualify for a more expensive home.

Practical Example

Let's look at a realistic scenario for a couple in a mid-sized city:

  • Annual Combined Income: $100,000
  • Monthly Car/Student Loans: $600
  • Down Payment: $30,000
  • Interest Rate: 7%
  • DTI Limit: 36%

Result: Based on these figures, the couple's gross monthly income is $8,333. At a 36% DTI, their total monthly debt limit is $3,000. Subtracting the $600 existing debt leaves $2,400 for a mortgage payment. This equates to a home price of approximately $390,000.

Conclusion

Before shopping for homes, use this home affordability calculator to set a realistic price range. Remember to leave room in your budget for "hidden costs" like maintenance, utilities, and property taxes, which can add 1% to 2% of the home's value to your annual expenses.

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