Mortgage Affordability Calculator
Use this calculator to estimate how much you might be able to borrow for a mortgage based on your income and debts.
Understanding Mortgage Affordability
Determining how much you can afford for a mortgage is a crucial step in the home-buying process. This calculator helps you estimate your borrowing capacity by considering your income, existing financial obligations, and the potential costs associated with a mortgage. Lenders typically use debt-to-income ratios (DTI) to assess your ability to manage monthly payments.
Key Factors:
- Annual Gross Income: This is your total income before taxes and deductions. Lenders use this as a primary indicator of your ability to repay a loan.
- Monthly Debt Payments: This includes all your existing recurring monthly payments for loans (car loans, student loans, personal loans) and credit card minimum payments. These are subtracted from your income to determine how much is left for a mortgage.
- Down Payment: The upfront amount you pay towards the home purchase. A larger down payment reduces the loan amount needed and can improve your chances of approval.
- Interest Rate: The annual interest rate on the mortgage. Higher interest rates mean higher monthly payments for the same loan amount.
- Loan Term: The duration of the mortgage (e.g., 15, 20, 30 years). Shorter terms usually have higher monthly payments but less interest paid over the life of the loan.
How it Works:
This calculator provides an estimate. Lenders have specific criteria, including credit score, DTI limits, and loan-to-value ratios, that will ultimately determine your approved loan amount. A common guideline is that your total housing costs (including principal, interest, property taxes, and homeowner's insurance) should not exceed 28% of your gross monthly income, and your total debt (including housing costs) should not exceed 36% of your gross monthly income. This calculator uses a simplified approach to give you a general idea.
Example:
Let's say Sarah has an annual gross income of $80,000. She has $500 in monthly debt payments for her car loan and student loans. She plans to make a $30,000 down payment on a home. She estimates an interest rate of 6.5% for a 30-year mortgage.
Her gross monthly income is $80,000 / 12 = $6,666.67.
Using the calculator with these figures, we can estimate her potential mortgage affordability.