Home Affordability Calculator
Determine the maximum home price you can afford based on your income and debts.
Maximum Home Price:
$0
Estimated Monthly Payment (P&I):
$0
Total Monthly Housing Cost:
$0
Debt-to-Income (DTI) Ratio:
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Understanding Home Affordability
Buying a home is one of the most significant financial decisions you'll ever make. This home affordability calculator uses the "Debt-to-Income" (DTI) ratio, a standard metric used by lenders to determine how much they are willing to lend you. Most lenders prefer a front-end DTI (housing costs only) of 28% and a back-end DTI (all debts) of 36% to 43%.
How Much House Can You Really Afford?
To calculate your purchasing power, we look at several critical factors:
- Gross Annual Income: Your total income before taxes.
- Existing Monthly Debts: These include car loans, student loans, and minimum credit card payments.
- Down Payment: The cash you have upfront reduces the loan amount and can eliminate Private Mortgage Insurance (PMI) if it's 20% or more.
- Interest Rates: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars.
Real-World Affordability Example
Imagine a household with the following profile:
- Annual Income: $100,000
- Down Payment: $50,000
- Monthly Debt: $500
- Interest Rate: 6.0%
Based on a conservative 36% DTI ratio, this household could qualify for a monthly total payment of roughly $2,500. After subtracting the $500 debt and estimated taxes/insurance, they could afford a home priced approximately at $385,000.
The 28/36 Rule
Financial experts often recommend the 28/36 rule. This suggests that you spend no more than 28% of your gross monthly income on housing expenses and no more than 36% on total debt servicing. While some loan programs (like FHA) allow for higher ratios, staying within these bounds ensures you aren't "house poor."