Determine how much house you can afford based on your income and estimated monthly expenses.
Your estimated maximum monthly housing payment is: $0
Estimated Maximum Loan Amount: $0
Understanding Mortgage Affordability and Income Ratios
Determining how much house you can afford is a critical step in the home-buying process. Lenders and financial advisors often use income ratios to assess affordability. The most common ratios are the Front-End Ratio (or Housing Ratio) and the Back-End Ratio (or Debt-to-Income Ratio).
This calculator helps estimate your maximum affordable housing payment and loan amount by considering your income, existing debts, and a target Debt-to-Income (DTI) ratio.
Key Concepts:
Annual Household Income: This is your total gross income from all sources before taxes and deductions. Lenders primarily use gross income for affordability calculations.
Current Monthly Rent/Mortgage: If you are currently renting or making mortgage payments, this is factored in as part of your existing housing commitment.
Other Monthly Debt Payments: This includes all recurring monthly debt obligations such as car loans, student loans, credit card minimum payments, and personal loans. It does *not* typically include utility bills or basic living expenses.
Down Payment: The upfront cash you pay towards the purchase price of the home. A larger down payment reduces the amount you need to finance.
Loan Term (Years): The total duration over which you agree to repay the loan. Common terms are 15, 20, and 30 years. Longer terms mean lower monthly payments but more interest paid over time.
Interest Rate (%): The annual interest rate charged on the mortgage loan. This significantly impacts your monthly payment.
How This Calculator Works:
Lenders typically have limits on how much of your income can go towards housing (Front-End Ratio) and total debt (Back-End Ratio). A common guideline is that your total monthly debt payments (including the new proposed mortgage) should not exceed 36% to 43% of your gross monthly income (Back-End Ratio). This calculator aims to help you find a comfortable maximum housing payment within these general guidelines.
The calculation focuses on estimating a maximum PITI (Principal, Interest, Taxes, Insurance) payment. For simplicity, this calculator focuses on the P&I (Principal and Interest) portion of the payment and uses your inputs to estimate the loan amount.
Calculate Gross Monthly Income: `Gross Monthly Income = Annual Household Income / 12`
Calculate Maximum Allowable Total Monthly Debt: A common target for the Back-End DTI is 36%. `Max Total Monthly Debt = Gross Monthly Income * 0.36` (This can be adjusted based on lender guidelines and risk tolerance)
Calculate Maximum Allowable Housing Payment (PITI): This is the maximum you can spend on housing, including Principal, Interest, Taxes, and Insurance. `Max Housing Payment = Max Total Monthly Debt – Other Monthly Debt Payments`
Estimate Maximum Loan Amount: Using the calculated `Max Housing Payment` (and assuming estimates for taxes and insurance, which are not directly input here but are critical for actual affordability), the calculator works backward using the mortgage payment formula to find the maximum loan amount.
The formula for a monthly mortgage payment (M) is:
`M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]`
Where:
n = Total Number of Payments (Loan Term in Years * 12)
To find P (Principal Loan Amount), we rearrange the formula:
`P = M [ (1 + i)^n – 1 ] / i(1 + i)^n`
In our calculator, 'M' is approximated by the `Max Housing Payment` minus estimated property taxes and homeowner's insurance (which are difficult to estimate precisely without location data and are sometimes bundled into lender guidelines). For this calculator, we use the `Max Housing Payment` as the target for P&I and factor in the down payment.
Disclaimer: This calculator provides an estimate for informational purposes only. Actual loan approval depends on lender-specific underwriting criteria, credit score, employment history, property appraisal, and other factors. It's crucial to consult with a mortgage lender for accurate pre-approval. Property taxes and homeowner's insurance can vary significantly and should be factored into your final housing budget.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyRentMortgage = parseFloat(document.getElementById("monthlyRentMortgage").value);
var otherMonthlyDebt = parseFloat(document.getElementById("otherMonthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var loanTermYears = parseInt(document.getElementById("loanTermYears").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
// Basic validation
if (isNaN(annualIncome) || annualIncome <= 0) {
alert("Please enter a valid Annual Household Income.");
return;
}
if (isNaN(monthlyRentMortgage) || monthlyRentMortgage < 0) {
alert("Please enter a valid Current Monthly Rent/Mortgage amount.");
return;
}
if (isNaN(otherMonthlyDebt) || otherMonthlyDebt < 0) {
alert("Please enter a valid Other Monthly Debt Payments amount.");
return;
}
if (isNaN(downPayment) || downPayment < 0) {
alert("Please enter a valid Down Payment amount.");
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please enter a valid Loan Term in Years.");
return;
}
if (isNaN(interestRate) || interestRate <= 0) {
alert("Please enter a valid Estimated Interest Rate.");
return;
}
var grossMonthlyIncome = annualIncome / 12;
// Using a common back-end DTI limit (e.g., 36%)
var targetDTI = 0.36;
var maxTotalMonthlyDebt = grossMonthlyIncome * targetDTI;
// Maximum allowable housing payment (PITI – Principal, Interest, Taxes, Insurance)
// For simplicity, we are calculating the max P&I payment first, and assuming taxes/insurance will be a portion of this.
// A more robust calculator would ask for estimates of taxes and insurance.
// Here, we'll use the max housing payment for P&I calculation.
var maxHousingPayment = maxTotalMonthlyDebt – otherMonthlyDebt;
if (maxHousingPayment 0) {
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
maxLoanAmount = maxHousingPayment * (numerator / denominator);
} else { // Handle 0% interest rate case
maxLoanAmount = maxHousingPayment * numberOfPayments;
}
// Ensure maxLoanAmount is not negative if maxHousingPayment was barely positive
maxLoanAmount = Math.max(0, maxLoanAmount);
// Now, we can calculate the P&I component of the max monthly payment based on this maxLoanAmount
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
var pAndIMax = 0;
if (monthlyInterestRate > 0) {
var numeratorPI = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
var denominatorPI = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
pAndIMax = maxLoanAmount * (numeratorPI / denominatorPI);
} else { // Handle 0% interest rate case
pAndIMax = maxLoanAmount / numberOfPayments;
}
pAndIMax = Math.max(0, pAndIMax); // Ensure not negative
// The 'maxHousingPayment' is our target PITI.
// The calculated P&I is pAndIMax.
// The difference is what's left for Taxes & Insurance.
var estimatedTaxesInsurance = maxHousingPayment – pAndIMax;
// Format results for display
var formattedMaxMonthlyPayment = maxHousingPayment.toFixed(2);
var formattedMaxLoanAmount = (maxLoanAmount).toFixed(2);
document.getElementById("result").innerHTML =
"Your estimated maximum monthly housing payment (PITI) is: $" + formattedMaxMonthlyPayment + "" +
"" +
"Estimated Maximum Loan Amount: $" + formattedMaxLoanAmount + "" +
"" +
"This estimate assumes your total monthly debt (including P&I, taxes, and insurance) does not exceed 36% of your gross monthly income. " +
"Estimated Principal & Interest (P&I) portion is approximately $" + pAndIMax.toFixed(2) + ". " +
"Estimated for Taxes & Insurance: $" + Math.max(0, estimatedTaxesInsurance).toFixed(2) + ".";
}