Formula to Calculate Compound Interest Rate in Excel

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Understanding Home Affordability: How Much House Can You Buy?

Determining how much house you can afford is the crucial first step in the homebuying process. It goes beyond simply looking at the sticker price of a property. True affordability depends on your overall financial health, specifically focusing on your income, existing debt obligations, the amount of cash you have available for a down payment, and current mortgage interest rates.

Lenders primarily use a metric called the Debt-to-Income (DTI) ratio to decide how much they are willing to lend. There are two types of DTI ratios typically analyzed:

  • Front-End Ratio (Housing Ratio): This is the percentage of your gross monthly income that goes toward housing costs (principal, interest, taxes, and insurance, often abbreviated as PITI). A common guideline is that this shouldn't exceed 28%.
  • Back-End Ratio (Total Debt Ratio): This is the percentage of your gross monthly income that goes toward all debt obligations, including housing costs plus credit cards, student loans, and car payments. Lenders generally prefer this ratio to be under 36% or 43%, depending on the loan type.

For example, if your household earns $8,000 gross per month and you have $500 in monthly student loan and car payments, a lender using a 36% back-end ratio would calculate your maximum total debt allowance as $2,880 ($8,000 * 0.36). Subtracting your existing $500 debt leaves $2,380 available for a maximum monthly mortgage payment (PITI). Our calculator below uses similar standard underwriting assumptions to estimate your buying power.

Home Affordability Calculator

(Credit cards, car loans, student loans, etc.)
30 Years 20 Years 15 Years

Enter your details above and click calculate to see your results.

function calculateAffordability() { 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 = parseInt(document.getElementById('loanTerm').value); if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm) || annualIncome <= 0) { document.getElementById('affordabilityResult').innerHTML = "Please enter valid positive numbers for all income and debt fields."; return; } var frontEndRatioCap = 0.28; var backEndRatioCap = 0.36; var estimatedAnnualTaxRate = 0.012; var estimatedAnnualInsuranceRate = 0.005; var monthlyGrossIncome = annualIncome / 12; var maxPITI_FrontEnd = monthlyGrossIncome * frontEndRatioCap; var maxPITI_BackEnd = (monthlyGrossIncome * backEndRatioCap) – monthlyDebt; var maxAllowedPITI = Math.min(maxPITI_FrontEnd, maxPITI_BackEnd); maxAllowedPITI = Math.max(0, maxAllowedPITI); var monthlyInterestRate = (interestRate / 100) / 12; var totalPayments = loanTerm * 12; var monthlyTIS_Factor = (estimatedAnnualTaxRate + estimatedAnnualInsuranceRate) / 12; var mortgageFactor = 0; if (monthlyInterestRate === 0) { mortgageFactor = 1 / totalPayments; } else { mortgageFactor = (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, totalPayments)) / (Math.pow(1 + monthlyInterestRate, totalPayments) – 1); } var maxAffordablePrice = (maxAllowedPITI + (downPayment * mortgageFactor)) / (mortgageFactor + monthlyTIS_Factor); if (maxAffordablePrice < downPayment) { maxAffordablePrice = downPayment; } var finalLoanAmount = maxAffordablePrice – downPayment; var finalPI = finalLoanAmount * mortgageFactor; var finalTaxes = (maxAffordablePrice * estimatedAnnualTaxRate) / 12; var finalInsurance = (maxAffordablePrice * estimatedAnnualInsuranceRate) / 12; var finalEstimatedPayment = finalPI + finalTaxes + finalInsurance; var currencyFormatter = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', maximumFractionDigits: 0 }); var resultHTML = "

Affordability Estimation

"; resultHTML += "Maximum Home Price: " + currencyFormatter.format(maxAffordablePrice) + ""; resultHTML += "Estimated Monthly Payment (PITI): " + currencyFormatter.format(finalEstimatedPayment) + ""; resultHTML += "*This estimate includes Principal, Interest, and estimated Taxes & Insurance based on standard 28%/36% DTI guidelines. Actual lender qualification may vary."; document.getElementById('affordabilityResult').innerHTML = resultHTML; }

Keep in mind that this calculator provides an estimate based on standard financial guidelines. It includes estimates for property taxes and homeowners insurance, which vary significantly by location. Furthermore, it does not account for Private Mortgage Insurance (PMI), which is typically required if your down payment is less than 20% of the home's purchase price. To get a definitive answer on your price range, you should consult with a qualified mortgage lender to get pre-approved.

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