Understanding Home Affordability: How Much House Can You Buy?
Buying a home is the most significant investment most people will ever make. Determining your home affordability isn't just about what a bank will lend you; it's about what you can comfortably pay every month without sacrificing your quality of life.
Key Factors in Home Affordability
Lenders look at several specific metrics to determine your eligibility. Our calculator uses these same industry standards to provide an accurate estimate.
1. Debt-to-Income (DTI) Ratio
The DTI ratio is the percentage of your gross monthly income that goes toward paying debts. Most conventional lenders prefer a DTI ratio below 43%, though some specialized programs allow for higher. This includes your new mortgage payment plus car loans, student loans, and credit card minimums.
2. The Down Payment
Your down payment directly impacts your loan-to-value ratio. A higher down payment reduces your monthly principal and interest costs and can help you avoid Private Mortgage Insurance (PMI) if you contribute 20% or more.
3. Interest Rates
Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars. Higher rates mean higher monthly interest costs, which lowers the total loan amount you can afford under a fixed DTI.
Realistic Example:
Gross Annual Income: $100,000 ($8,333/month)
Monthly Debts: $400 (Car loan)
Down Payment: $50,000
Result: At a 6.5% interest rate and a 43% DTI ratio, you could potentially afford a home priced at approximately $495,000. Your monthly mortgage payment would be roughly $3,180.
How to Improve Your Affordability
Reduce Existing Debt: Paying off a car loan or credit card can significantly lower your DTI.
Improve Your Credit Score: A higher credit score secures lower interest rates, increasing your buying power.
Save a Larger Down Payment: This reduces the loan amount and interest paid over the life of the loan.
Consider Taxes and Insurance: Remember that our estimate covers Principal and Interest. You must also budget for property taxes, homeowners insurance, and potentially HOA fees.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById('annualIncome').value);
var monthlyDebts = parseFloat(document.getElementById('monthlyDebts').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var interestRate = parseFloat(document.getElementById('interestRate').value);
var loanTermYears = parseInt(document.getElementById('loanTerm').value);
var dtiLimit = parseInt(document.getElementById('dtiRatio').value) / 100;
if (isNaN(annualIncome) || isNaN(monthlyDebts) || isNaN(downPayment) || isNaN(interestRate)) {
alert("Please enter valid numerical values.");
return;
}
// 1. Calculate Monthly Gross Income
var monthlyGrossIncome = annualIncome / 12;
// 2. Calculate Maximum Allowable Monthly Debt (Total)
var maxTotalMonthlyDebt = monthlyGrossIncome * dtiLimit;
// 3. Calculate Available Monthly Mortgage Payment (Principal + Interest)
var availableMonthlyPayment = maxTotalMonthlyDebt – monthlyDebts;
if (availableMonthlyPayment <= 0) {
document.getElementById('resultSection').style.display = "block";
document.getElementById('maxHomePrice').innerHTML = "$0";
document.getElementById('monthlyPayment').innerHTML = "$0";
document.getElementById('dtiWarning').innerHTML = "Your current monthly debts exceed your chosen DTI ratio limit.";
return;
} else {
document.getElementById('dtiWarning').innerHTML = "";
}
// 4. Solve for Loan Amount using Mortgage Formula: P = L[c(1 + c)^n]/[(1 + c)^n – 1]
// Where L is loan amount, c is monthly interest rate, n is number of months
var monthlyRate = (interestRate / 100) / 12;
var numberOfPayments = loanTermYears * 12;
var loanAmount = availableMonthlyPayment * (Math.pow(1 + monthlyRate, numberOfPayments) – 1) / (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments));
// 5. Total Home Price = Loan Amount + Down Payment
var totalHomePrice = loanAmount + downPayment;
// Display Results
document.getElementById('resultSection').style.display = "block";
document.getElementById('maxHomePrice').innerHTML = "$" + totalHomePrice.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0});
document.getElementById('monthlyPayment').innerHTML = "$" + availableMonthlyPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + " /mo";
// Smooth scroll to results
document.getElementById('resultSection').scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}