Determining your budget is the critical first step in the home buying process. This Home Affordability Calculator goes beyond simple multiplication; it uses the standard debt-to-income (DTI) ratios that lenders actually use to qualify you for a mortgage.
Understanding the Calculation Logic
Lenders typically look at two specific ratios to decide how much they will lend you:
The Front-End Ratio (28%): This rule suggests that your housing costs (mortgage principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.
The Back-End Ratio (36%): This rule states that your total monthly debt payments (including the new housing costs plus existing debts like car loans, student loans, and credit cards) should not exceed 36% of your gross monthly income.
Our calculator computes both scenarios and uses the lower of the two values to ensure you don't overextend your finances. This provides a conservative and realistic maximum home price.
Key Factors Affecting Your Affordability
1. Down Payment: A larger down payment reduces the loan amount required, which lowers your monthly payments. This allows you to purchase a more expensive home while staying within the lender's income ratios.
2. Interest Rates: Even a small fluctuation in interest rates can significantly impact your buying power. A 1% increase in rates can reduce your buying power by roughly 10%.
3. Recurring Debts: High monthly debts (like an expensive car lease) directly reduce the amount of income available for a mortgage. Paying down these debts before applying can boost your budget.
What Is Included in "Monthly Housing Costs"?
When calculating affordability, it is not just about the loan repayment. You must account for:
Principal & Interest: The money paid to the bank to repay the loan.
Property Taxes: Paid to your local government, usually bundled into your monthly payment.
Homeowners Insurance: Protects your property against damage and liability.
HOA Fees (Optional): If you buy a condo or in a planned community, these fees also count against your debt-to-income ratio.
function calculateAffordability() {
// 1. Get Input Values
var annualIncome = parseFloat(document.getElementById('annualIncome').value);
var monthlyDebts = parseFloat(document.getElementById('monthlyDebts').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var interestRate = parseFloat(document.getElementById('interestRate').value);
var loanTermYears = parseFloat(document.getElementById('loanTerm').value);
var taxRateAnnual = parseFloat(document.getElementById('propertyTax').value);
var insuranceAnnual = parseFloat(document.getElementById('homeInsurance').value);
// 2. Validation
if (isNaN(annualIncome) || annualIncome <= 0) {
alert("Please enter a valid Annual Income.");
return;
}
if (isNaN(monthlyDebts)) monthlyDebts = 0;
if (isNaN(downPayment)) downPayment = 0;
if (isNaN(interestRate) || interestRate <= 0) {
alert("Please enter a valid Interest Rate.");
return;
}
if (isNaN(taxRateAnnual)) taxRateAnnual = 0;
if (isNaN(insuranceAnnual)) insuranceAnnual = 0;
// 3. Setup Variables for Calculation
var grossMonthlyIncome = annualIncome / 12;
var monthlyTaxRate = (taxRateAnnual / 100) / 12;
var monthlyInsuranceCost = insuranceAnnual / 12;
// Mortgage Math Constants
var monthlyInterestRate = (interestRate / 100) / 12;
var totalPayments = loanTermYears * 12;
// Mortgage Factor Formula: (r * (1+r)^n) / ((1+r)^n – 1)
var mortgageFactor = (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, totalPayments)) /
(Math.pow(1 + monthlyInterestRate, totalPayments) – 1);
// 4. Calculate Max Monthly Payments based on Ratios
// Front-End Ratio (Housing expenses max 28% of income)
var maxPaymentFrontEnd = grossMonthlyIncome * 0.28;
// Back-End Ratio (Total debts max 36% of income)
// Max Housing = (Income * 0.36) – Existing Debts
var maxPaymentBackEnd = (grossMonthlyIncome * 0.36) – monthlyDebts;
// The affordable payment is the lesser of the two (conservative approach)
var maxAffordableTotalMonthlyPayment = Math.min(maxPaymentFrontEnd, maxPaymentBackEnd);
// If debts are too high, result might be negative
if (maxAffordableTotalMonthlyPayment <= 0) {
document.getElementById('haResult').style.display = 'block';
document.getElementById('maxHomePriceDisplay').innerText = "$0";
document.getElementById('monthlyPaymentDisplay').innerText = "Debt too high";
document.getElementById('piDisplay').innerText = "$0";
document.getElementById('taxDisplay').innerText = "$0";
document.getElementById('insDisplay').innerText = "$0";
document.getElementById('dtiDisplay').innerText = "N/A";
return;
}
// 5. Solve for Home Price
// Formula: TotalPayment = (LoanAmount * MortgageFactor) + Taxes + Insurance
// LoanAmount = HomePrice – DownPayment
// Taxes = HomePrice * MonthlyTaxRate
// Insurance = MonthlyInsuranceCost (Fixed input) or (HomePrice * InsRate)…
// In this form, Insurance is fixed $ amount input, Tax is % input.
// Equation:
// MaxPayment = ((Price – Down) * MortgageFactor) + (Price * TaxRate) + InsCost
// MaxPayment – InsCost + (Down * MortgageFactor) = Price * MortgageFactor + Price * TaxRate
// MaxPayment – InsCost + (Down * MortgageFactor) = Price * (MortgageFactor + TaxRate)
var numerator = maxAffordableTotalMonthlyPayment – monthlyInsuranceCost + (downPayment * mortgageFactor);
var denominator = mortgageFactor + monthlyTaxRate;
var maxHomePrice = numerator / denominator;
// Ensure price isn't less than downpayment (logic check)
if (maxHomePrice < downPayment) {
maxHomePrice = downPayment; // You can afford what you have in cash
}
// 6. Calculate breakdown based on the derived Home Price
var calculatedLoanAmount = maxHomePrice – downPayment;
if (calculatedLoanAmount < 0) calculatedLoanAmount = 0;
var monthlyPI = calculatedLoanAmount * mortgageFactor;
var monthlyTax = maxHomePrice * monthlyTaxRate;
// Insurance is fixed input in this calc
var monthlyIns = monthlyInsuranceCost;
var totalCheck = monthlyPI + monthlyTax + monthlyIns;
// 7. Determine limiting ratio for display
var usedRatio = "28% (Front-End)";
if (maxPaymentBackEnd < maxPaymentFrontEnd) {
usedRatio = "36% (Back-End)";
}
// 8. Output Formatting
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById('maxHomePriceDisplay').innerText = formatter.format(maxHomePrice);
document.getElementById('monthlyPaymentDisplay').innerText = formatter.format(totalCheck) + " /mo";
document.getElementById('piDisplay').innerText = formatter.format(monthlyPI);
document.getElementById('taxDisplay').innerText = formatter.format(monthlyTax);
document.getElementById('insDisplay').innerText = formatter.format(monthlyIns);
document.getElementById('dtiDisplay').innerText = usedRatio;
document.getElementById('haResult').style.display = 'block';
}