Estimate how much home you can actually afford based on your income and debt.
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Estimated Home Budget
Understanding Home Affordability: How Much Can You Really Spend?
Determining your home buying budget is the most critical step in the real estate process. Lenders typically look at your financial profile through the lens of the 28/36 Rule. This rule suggests that your mortgage payment should not exceed 28% of your gross monthly income, and your total debt payments should not exceed 36%.
Key Factors That Influence Your Budget
Debt-to-Income Ratio (DTI): This is the percentage of your gross monthly income that goes toward paying debts. A lower DTI indicates less risk to lenders and higher purchasing power.
Down Payment: The more cash you bring to the table, the lower your loan amount and monthly interest costs will be.
Interest Rates: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars.
Property Taxes and Insurance: These are often "hidden" costs bundled into your monthly mortgage payment (PITI).
Realistic Example
If you earn $80,000 per year and have $500 in monthly debt (like a car loan or student loan), a lender might qualify you for a monthly mortgage payment of roughly $1,900. At a 6.5% interest rate with $30,000 down, your maximum home price would be approximately $285,000 to $310,000 depending on local property tax rates.
How to Improve Your Affordability
If the calculator shows a lower number than you hoped for, consider these strategies:
Reduce Existing Debt: Paying off a credit card or car loan can significantly boost your DTI ratio.
Improve Your Credit Score: Higher scores unlock lower interest rates, which lowers your monthly payment.
Increase Your Down Payment: Saving for a larger down payment reduces the principal and may eliminate the need for Private Mortgage Insurance (PMI).
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var annualInterestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseInt(document.getElementById("loanTerm").value);
var taxInsRate = parseFloat(document.getElementById("taxInsurance").value);
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(annualInterestRate)) {
alert("Please enter valid numerical values.");
return;
}
// Monthly Gross Income
var monthlyGross = annualIncome / 12;
// 28/36 Rule Calculation
// Rule 1: Front-end ratio (28% of gross)
var maxMonthlyPITI_1 = monthlyGross * 0.28;
// Rule 2: Back-end ratio (36% of gross minus existing debt)
var maxMonthlyPITI_2 = (monthlyGross * 0.36) – monthlyDebt;
// Use the more conservative of the two
var maxPITI = Math.min(maxMonthlyPITI_1, maxMonthlyPITI_2);
if (maxPITI <= 0) {
document.getElementById("homePriceResult").innerText = "$0";
document.getElementById("monthlyPaymentResult").innerText = "Debt levels too high for current income.";
document.getElementById("resultArea").style.display = "block";
return;
}
// Solve for Mortgage Principal (P)
// PITI = P + I + T + Insurance
// Let's estimate T + Insurance as a percentage of home price (HP)
// Monthly Tax/Ins = (HP * taxInsRate/100) / 12
// Monthly P&I = maxPITI – Monthly Tax/Ins
// Mortgage Payment Formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
var monthlyInterest = (annualInterestRate / 100) / 12;
var numberOfPayments = loanTermYears * 12;
// Iterative approach to find Home Price (HP) because Tax/Ins is based on HP, not Loan Amount
// MaxHP = Loan + DownPayment
// PITI = [ (HP – Down) * i(1+i)^n / ((1+i)^n – 1) ] + [ HP * (taxRate/12) ]
var factor = (monthlyInterest * Math.pow(1 + monthlyInterest, numberOfPayments)) / (Math.pow(1 + monthlyInterest, numberOfPayments) – 1);
var monthlyTaxFactor = (taxInsRate / 100) / 12;
// HP * factor – Down * factor + HP * monthlyTaxFactor = maxPITI
// HP(factor + monthlyTaxFactor) = maxPITI + (Down * factor)
var homePrice = (maxPITI + (downPayment * factor)) / (factor + monthlyTaxFactor);
var loanAmount = homePrice – downPayment;
if (loanAmount < 0) {
homePrice = downPayment;
loanAmount = 0;
}
var finalMonthlyP&I = loanAmount * factor;
var finalMonthlyTaxIns = homePrice * monthlyTaxFactor;
var totalMonthly = finalMonthlyP&I + finalMonthlyTaxIns;
// Display Results
document.getElementById("homePriceResult").innerText = "$" + Math.round(homePrice).toLocaleString();
document.getElementById("monthlyPaymentResult").innerText = "Estimated Monthly Payment: $" + Math.round(totalMonthly).toLocaleString();
document.getElementById("loanAmountResult").innerText = "Loan Amount: $" + Math.round(loanAmount).toLocaleString() + " | Down Payment: $" + Math.round(downPayment).toLocaleString();
document.getElementById("resultArea").style.display = "block";
}