Determining your home buying power is the first critical step in the real estate journey. While a bank might pre-approve you for a certain amount, "affordability" is a personal metric that balances your income, existing debts, and lifestyle goals. This calculator uses the standard financial guidelines used by lenders to help you find your comfortable price range.
The 28/36 Rule Explained
Lenders typically use the 28/36 rule to assess mortgage risk:
Front-End Ratio (28%): Your total monthly housing costs (principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.
Back-End Ratio (36%): Your total debt obligations (including the new mortgage plus car loans, student loans, and credit card minimums) should not exceed 36% of your gross monthly income.
Key Factors Impacting Your Buying Power
Several variables change the outcome of your affordability calculation:
Interest Rates: Even a 1% increase in interest rates can reduce your buying power by tens of thousands of dollars.
Down Payment: A larger down payment reduces the loan amount, which lowers your monthly interest costs and may eliminate the need for Private Mortgage Insurance (PMI).
Debt-to-Income (DTI) Ratio: If you have high monthly car payments or student loans, you will qualify for a smaller mortgage because your "Back-End Ratio" is squeezed.
Realistic Example
Imagine a couple earning $100,000 per year with $500 in monthly debt and $50,000 saved for a down payment. At a 6.5% interest rate for 30 years, their maximum affordable home price would be approximately $435,000, assuming a 36% DTI limit. This allows for a monthly mortgage payment of roughly $2,500.
function calculateAffordability() {
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 dtiLimit = parseFloat(document.getElementById('dtiLimit').value);
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
alert("Please enter valid numerical values.");
return;
}
// Monthly Gross Income
var monthlyGross = annualIncome / 12;
// Max Monthly PITI (Principal, Interest, Taxes, Insurance) based on DTI
var maxMonthlyPITI = (monthlyGross * (dtiLimit / 100)) – monthlyDebt;
if (maxMonthlyPITI <= 0) {
document.getElementById('result').style.display = "block";
document.getElementById('maxHomePrice').innerHTML = "$0";
document.getElementById('monthlyBreakdown').innerHTML = "Your current monthly debts exceed the recommended DTI limit.";
return;
}
// Estimate Taxes and Insurance as 1.5% of home value annually (standard simplification)
// Monthly Tax/Insurance factor = 0.015 / 12 = 0.00125 of home price
// Since we need to solve for Home Price (HP):
// maxMonthlyPITI = [ (HP – DownPayment) * (r(1+r)^n / ((1+r)^n -1)) ] + (HP * 0.00125)
var monthlyRate = (interestRate / 100) / 12;
var numPayments = loanTerm * 12;
// Standard Mortgage Factor (M)
var mFactor = (monthlyRate * Math.pow(1 + monthlyRate, numPayments)) / (Math.pow(1 + monthlyRate, numPayments) – 1);
// Tax and Insurance Factor (T)
var tFactor = 0.015 / 12;
// Formula: maxMonthlyPITI = (HP – DownPayment) * mFactor + (HP * tFactor)
// maxMonthlyPITI = HP * mFactor – DownPayment * mFactor + HP * tFactor
// maxMonthlyPITI + DownPayment * mFactor = HP * (mFactor + tFactor)
// HP = (maxMonthlyPITI + DownPayment * mFactor) / (mFactor + tFactor)
var maxHomePrice = (maxMonthlyPITI + (downPayment * mFactor)) / (mFactor + tFactor);
if (maxHomePrice < downPayment) {
maxHomePrice = downPayment;
}
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById('result').style.display = "block";
document.getElementById('maxHomePrice').innerHTML = formatter.format(maxHomePrice);
document.getElementById('monthlyBreakdown').innerHTML = "Based on a maximum monthly payment of " + formatter.format(maxMonthlyPITI) + " (Principal, Interest, Taxes & Insurance)";
}