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Mortgage Affordability Calculator

Use this calculator to estimate how much you can afford to borrow for a mortgage. Enter your financial details below.

Your Estimated Mortgage Affordability:

Enter your details above to see your estimated maximum mortgage amount.

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Understanding Mortgage Affordability

Determining how much you can afford to borrow for a home is a crucial step in the home-buying process. A mortgage affordability calculator helps you estimate your borrowing capacity based on your financial situation.

Key Factors in Mortgage Affordability

  • Annual Household Income: This is your total gross income before taxes. Lenders use this as a primary indicator of your ability to repay a loan.
  • Monthly Debt Payments: This includes all your recurring monthly financial obligations, such as car loans, student loans, credit card minimum payments, and personal loans. These are subtracted from your income to determine how much is left for a mortgage.
  • Down Payment: The amount of money you can put down upfront significantly impacts your loan amount and potentially your interest rate. A larger down payment reduces the amount you need to borrow.
  • Interest Rate: Even a small change in the interest rate can have a substantial effect on your monthly payment and the total amount of interest paid over the life of the loan.
  • Loan Term: This is the length of time you have to repay the mortgage, typically 15 or 30 years. Shorter terms mean higher monthly payments but less interest paid overall. Longer terms mean lower monthly payments but more interest paid.

How the Calculator Works

Our mortgage affordability calculator uses common financial guidelines to provide an estimate. Generally, lenders assess affordability using two main ratios:

  • Front-end Ratio (Housing Ratio): This ratio compares your potential total monthly housing costs (including principal, interest, taxes, and insurance – often referred to as PITI) to your gross monthly income. A common benchmark is that PITI should not exceed 28% of your gross monthly income.
  • Back-end Ratio (Debt-to-Income Ratio): This ratio compares all your monthly debt obligations (including the proposed mortgage payment) to your gross monthly income. A widely used benchmark is that total debt should not exceed 36% of your gross monthly income.

The calculator first determines the maximum monthly mortgage payment you can afford by considering these ratios and your existing debts. It then calculates the maximum loan amount you could obtain with that monthly payment, given the specified interest rate and loan term. Finally, it adds your down payment to this loan amount to estimate the maximum home price you might be able to afford.

Example Calculation

Let's say you have an Annual Household Income of $90,000, and your Total Monthly Debt Payments (excluding a mortgage) are $600. You plan to make a Down Payment of $30,000. You're looking at an estimated Interest Rate of 6.0% over a Loan Term of 30 years.

  • Gross Monthly Income: $90,000 / 12 = $7,500
  • Maximum Housing Payment (28% of income): $7,500 * 0.28 = $2,100
  • Maximum Total Debt Payment (36% of income): $7,500 * 0.36 = $2,700
  • Maximum Mortgage Payment (limited by total debt): $2,700 – $600 = $2,100
  • Since $2,100 (max mortgage payment) is also less than or equal to $2,100 (max housing payment), your maximum affordable monthly mortgage payment is $2,100.
  • Using a mortgage formula with a 6.0% interest rate over 30 years, a monthly payment of $2,100 could support a loan of approximately $350,000.
  • Estimated Maximum Home Price: $350,000 (loan amount) + $30,000 (down payment) = $380,000

Therefore, with these figures, you might be able to afford a home priced around $380,000. Remember, this is an estimate, and actual loan approval depends on the lender's specific criteria, credit score, and a full underwriting process.

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