Determine your realistic property purchase price based on financial health and debt ratios.
Analysis Results
Based on your financial profile, your maximum recommended property price is:
Estimated monthly principal and interest payment:
Understanding the Math of Home Affordability
Buying a home is the largest financial commitment most people ever make. To ensure you don't become "house poor," lenders and financial advisors use specific mathematical formulas known as Debt-to-Income (DTI) ratios.
The 28/36 Rule Explained
The standard guideline for home affordability is the 28/36 rule. This rule suggests that your housing-related expenses (principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income. Furthermore, your total debt obligations (including the new mortgage plus car payments, student loans, and credit cards) should not exceed 36% of your gross income.
Key Factors That Influence Your Buying Power
Gross Annual Earnings: This is your total income before taxes. Lenders use this number because it is a stable baseline for comparison.
Monthly Recurring Debt: These are contractual obligations like car notes, minimum credit card payments, and personal loans. High debt significantly lowers how much a bank will lend you.
Initial Capital Reserves: The amount of cash you have available upfront directly impacts your purchase price. The more you can put down initially, the less you need to borrow, which lowers monthly financing costs.
Financing Percentage: Even a 1% difference in the annual financing rate can change your purchasing power by tens of thousands of dollars.
Real-World Example
If a household earns $100,000 annually ($8,333 per month) and has $500 in monthly car payments:
At 28% of income, the maximum housing payment is $2,333.
At 36% total debt limit ($2,999 total), subtracting the $500 car payment leaves $2,499.
The calculator takes the lower of these two ($2,333) and subtracts estimated taxes and insurance to find the available amount for the actual loan payment.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value) || 0;
var initialCapital = parseFloat(document.getElementById("initialCapital").value) || 0;
var marketRate = parseFloat(document.getElementById("marketRate").value);
var holdingCosts = parseFloat(document.getElementById("holdingCosts").value) || 0;
var loanTerm = parseFloat(document.getElementById("loanTerm").value) || 30;
if (isNaN(annualIncome) || isNaN(marketRate) || annualIncome <= 0 || marketRate <= 0) {
alert("Please enter valid figures for income and financing percentage.");
return;
}
var monthlyGross = annualIncome / 12;
// 28% Front-end ratio (Housing only)
var frontEndLimit = monthlyGross * 0.28;
// 36% Back-end ratio (Total debt)
var backEndLimit = (monthlyGross * 0.36) – monthlyDebt;
// Use the more conservative limit
var maxMonthlyHousing = Math.min(frontEndLimit, backEndLimit);
// Subtract taxes and insurance to find amount available for Principal and Interest (P&I)
var availablePI = maxMonthlyHousing – holdingCosts;
if (availablePI <= 0) {
document.getElementById("affordResult").style.display = "block";
document.getElementById("maxPrice").innerHTML = "Insufficient Income";
document.getElementById("monthlyPI").innerHTML = "$0";
document.getElementById("affordFeedback").innerText = "Your current debts and estimated holding costs exceed recommended debt-to-income limits.";
return;
}
// Mortgage Formula: P = L[c(1 + c)^n]/[(1 + c)^n – 1]
// Reversing it to find L (Loan Amount): L = P / [c(1 + c)^n / ((1 + c)^n – 1)]
var monthlyRate = (marketRate / 100) / 12;
var numberOfPayments = loanTerm * 12;
var factor = (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
var maxLoan = availablePI / factor;
var maxPropertyPrice = maxLoan + initialCapital;
// Display Results
document.getElementById("affordResult").style.display = "block";
document.getElementById("maxPrice").innerHTML = "$" + Math.round(maxPropertyPrice).toLocaleString();
document.getElementById("monthlyPI").innerHTML = "$" + Math.round(availablePI).toLocaleString();
var feedback = "This estimate uses a " + (maxMonthlyHousing / monthlyGross * 100).toFixed(1) + "% total debt-to-income threshold. Ensure you also keep an emergency fund separate from your initial capital reserves.";
document.getElementById("affordFeedback").innerText = feedback;
// Scroll to result
document.getElementById("affordResult").scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}