This calculator helps you estimate how much house you can afford based on your income, debts, and down payment. Understanding your potential mortgage amount is a crucial first step in your home-buying journey.
Please enter valid positive numbers for all fields.
";
return;
}
// Lender typically allows PITI (Principal, Interest, Taxes, Insurance) to be 28% of gross income
var maxPiti = grossMonthlyIncome * 0.28;
// Lender typically allows total debt (PITI + other debts) to be 36% of gross income
var maxTotalDebt = grossMonthlyIncome * 0.36;
// Maximum allowed monthly payment for mortgage (PITI)
var maxMortgagePayment = maxTotalDebt – monthlyDebtPayments;
// Ensure maxMortgagePayment is not negative
if (maxMortgagePayment 0) {
var monthlyInterestRate = (estimatedInterestRate / 100) / 12;
var numberOfPayments = loanTerm * 12;
// Formula for maximum loan amount (derived from mortgage payment formula)
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
if (denominator > 0) {
maxLoanAmount = maxMortgagePayment * (numerator / denominator);
}
}
// Maximum affordable home price is the maximum loan amount plus the down payment
var maxAffordablePrice = maxLoanAmount + downPayment;
resultDiv.innerHTML = "
Your Estimated Mortgage Affordability
" +
"Maximum Principal & Interest Payment You Can Afford (P&I): $" + maxMortgagePayment.toFixed(2) + "" +
"Estimated Maximum Loan Amount: $" + maxLoanAmount.toFixed(2) + "" +
"Estimated Maximum Home Price You Can Afford: $" + maxAffordablePrice.toFixed(2) + "" +
"Note: This is an estimate and does not include property taxes, homeowner's insurance, or potential HOA fees, which will increase your total monthly housing cost (PITI). Consult with a mortgage professional for a pre-approval.";
}
## Understanding Mortgage Affordability
Buying a home is a significant financial decision, and understanding how much you can realistically afford is the cornerstone of a successful home-buying journey. Mortgage affordability calculators are tools designed to give you a preliminary estimate of your borrowing capacity. They take into account several key financial factors to help you determine a home price range that aligns with your income and existing financial obligations.
**Key Factors in Mortgage Affordability:**
* **Gross Monthly Income:** This is your total income before taxes and other deductions. Lenders use this figure to assess your ability to manage monthly payments.
* **Total Monthly Debt Payments:** This includes all recurring monthly debts such as car loans, student loans, credit card minimum payments, and personal loans. Lenders sum these with your potential mortgage payment to ensure your total debt burden remains manageable.
* **Down Payment:** The amount of money you pay upfront towards the purchase price of the home. A larger down payment reduces the loan amount needed, which can lower your monthly payments and may help you qualify for better loan terms.
* **Interest Rate:** The annual interest rate on the mortgage significantly impacts your monthly payment. A higher interest rate means higher monthly payments for the same loan amount.
* **Loan Term:** The duration of the mortgage, typically 15 or 30 years. A shorter loan term results in higher monthly payments but less interest paid over the life of the loan. A longer term means lower monthly payments but more total interest paid.
**How the Calculator Works:**
This calculator employs common lending guidelines to estimate affordability. Lenders often use debt-to-income (DTI) ratios to qualify borrowers. Two common DTI ratios are:
1. **Front-End Ratio (or Housing Ratio):** This ratio compares your potential total monthly housing payment (Principal, Interest, Taxes, and Insurance – often referred to as PITI) to your gross monthly income. Lenders often prefer this to be no more than 28%.
2. **Back-End Ratio (or Total Debt Ratio):** This ratio compares your total monthly debt payments (including PITI) to your gross monthly income. Lenders typically aim for this ratio to be no more than 36%.
Our calculator uses the back-end ratio (36% of gross monthly income) to determine the maximum total monthly debt you can handle. It then subtracts your existing monthly debt payments to find the maximum allowable monthly mortgage payment (P&I – Principal and Interest). With this maximum P&I payment, the estimated interest rate, and the loan term, the calculator then calculates the maximum loan amount you can borrow. Finally, it adds your down payment to this loan amount to estimate the maximum home price you can afford.
**Example:**
Let's consider an example to illustrate how the calculator works:
* **Gross Monthly Income:** $6,000
* **Total Monthly Debt Payments (car loan, student loan):** $500
* **Down Payment:** $20,000
* **Estimated Annual Interest Rate:** 6.0%
* **Loan Term:** 30 Years
**Calculation Breakdown:**
1. **Maximum Total Debt Allowed:** $6,000 (Income) * 0.36 (36% DTI) = $2,160 per month
2. **Maximum Monthly Mortgage Payment (P&I):** $2,160 (Max Debt) – $500 (Existing Debts) = $1,660 per month
3. **Estimated Maximum Loan Amount:** Using the mortgage payment formula, with a $1,660 monthly payment, a 6.0% annual interest rate (0.5% monthly), and a 30-year term (360 payments), the maximum loan amount is approximately $276,850.
4. **Estimated Maximum Home Price:** $276,850 (Max Loan) + $20,000 (Down Payment) = $296,850
Therefore, based on these figures, this individual could potentially afford a home priced around $296,850.
**Important Considerations:**
* **PITI vs. P&I:** This calculator primarily estimates affordability based on Principal and Interest (P&I). However, your actual monthly housing cost will include Property Taxes, Homeowner's Insurance (Taxes and Insurance), and potentially Private Mortgage Insurance (PMI) or Homeowner Association (HOA) fees. These additional costs can significantly increase your total monthly outlay.
* **Lender Variations:** Lenders have different underwriting criteria. Some may allow higher DTI ratios, especially for borrowers with excellent credit or other strong financial profiles.
* **Closing Costs:** Remember to factor in closing costs, which can range from 2% to 5% of the loan amount.
* **Pre-Approval:** This calculator provides an estimate. For a definitive understanding of your borrowing power, it's crucial to get pre-approved by a mortgage lender. Pre-approval involves a detailed review of your credit, income, and assets.