Understanding Mortgage Affordability
Determining how much mortgage you can afford is a crucial step in the home-buying process. This calculator helps you estimate your potential borrowing capacity based on several key financial factors. It's important to remember that this is an estimate, and your actual mortgage approval will depend on a lender's specific underwriting criteria, including your credit score, debt-to-income ratio, employment history, and the specific property you intend to purchase.
Key Factors Explained:
- Annual Household Income: This is the total income earned by all borrowers annually before taxes. Lenders typically look at your stable, verifiable income.
- Total Monthly Debt Payments (excluding mortgage): This includes recurring monthly obligations like credit card payments, auto loans, student loans, and personal loans. These are subtracted from your income to determine how much is available for a mortgage payment.
- Down Payment: The upfront cash you pay towards the purchase of the home. A larger down payment reduces the loan amount needed and can lead to better loan terms.
- Estimated Annual Interest Rate (%): This is the annual percentage rate (APR) you anticipate for your mortgage. Mortgage rates fluctuate based on market conditions, your creditworthiness, and loan type.
- Loan Term (years): The duration over which you will repay the mortgage loan. Common terms are 15, 20, or 30 years. Shorter terms generally mean higher monthly payments but less total interest paid over time.
How the Calculator Works:
This calculator uses a common guideline where lenders often approve mortgages where the total housing payment (principal, interest, taxes, and insurance – PITI) is no more than 28% of your gross monthly income, and your total debt (including PITI) is no more than 36% of your gross monthly income. For simplicity in this calculator, we focus on the maximum loan amount you could potentially service based on a standard P&I calculation, considering your income and existing debts. The calculator estimates the maximum monthly principal and interest (P&I) payment you can afford and then determines the corresponding loan principal based on the provided interest rate and loan term.
Disclaimer: This calculator is for estimation purposes only and does not constitute financial advice or a loan commitment. Consult with a mortgage professional for personalized guidance.
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function calculateMortgageAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// Validate inputs
if (isNaN(annualIncome) || annualIncome <= 0 ||
isNaN(monthlyDebt) || monthlyDebt < 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(interestRate) || interestRate <= 0 ||
isNaN(loanTerm) || loanTerm <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
// Calculate gross monthly income
var grossMonthlyIncome = annualIncome / 12;
// Determine maximum affordable monthly P&I payment (using 28% of gross income guideline as a starting point)
var maxMonthlyPITI_guideline1 = grossMonthlyIncome * 0.28;
// Determine maximum affordable total debt payment (using 36% of gross income guideline as a starting point)
var maxTotalMonthlyPayment_guideline2 = grossMonthlyIncome * 0.36;
// The actual affordable P&I payment must be less than the difference between the total debt guideline and existing debts.
var affordableMonthlyPI_basedOnTotalDebt = maxTotalMonthlyPayment_guideline2 – monthlyDebt;
// The maximum P&I payment is the lower of the two guidelines, ensuring we don't exceed either.
var maxMonthlyPI = Math.min(maxMonthlyPITI_guideline1, affordableMonthlyPI_basedOnTotalDebt);
if (maxMonthlyPI 0) {
var numerator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfMonths);
var denominator = Math.pow(1 + monthlyInterestRate, numberOfMonths) – 1;
maxLoanAmount = maxMonthlyPI * (denominator / numerator);
} else {
// Handle zero interest rate case (though unlikely for mortgages)
maxLoanAmount = maxMonthlyPI * numberOfMonths;
}
// Calculate estimated maximum home price
var estimatedMaxHomePrice = maxLoanAmount + downPayment;
// Format results for display
var formattedMaxLoanAmount = estimatedMaxHomePrice.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var formattedMaxMonthlyPI = maxMonthlyPI.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var formattedEstimatedMaxHomePrice = estimatedMaxHomePrice.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
resultDiv.innerHTML =
"
Estimated Maximum Monthly Principal & Interest (P&I) Payment You Can Afford: $" + formattedMaxMonthlyPI + "" +
"
Estimated Maximum Loan Amount: $" + formattedMaxLoanAmount + "" +
"
Estimated Maximum Home Price (including down payment): $" + formattedEstimatedMaxHomePrice + "";
}