*PITI includes Principal, Interest, Taxes, and Insurance.
How Much House Can You Truly Afford?
Buying a home is the most significant financial decision most people will ever make. While a bank might pre-approve you for a certain amount, understanding the math behind home affordability ensures you don't become "house poor." Our home affordability calculator uses the Debt-to-Income (DTI) ratio and current market variables to help you find a comfortable price range.
The 28/36 Rule Explained
Financial advisors and lenders often refer to the "28/36 rule" to determine mortgage eligibility:
The 28% Rule: Your mortgage payment (including taxes and insurance) should not exceed 28% of your gross monthly income.
The 36% Rule: Your total debt payments (mortgage plus car loans, student loans, and credit cards) should not exceed 36% of your gross monthly income.
Most modern lenders have pushed these limits higher, often allowing a total DTI of 43% or even 50% for specific loan programs like FHA loans.
Key Factors Affecting Your Budget
Several variables change how much house you can afford even if your income stays the same:
Interest Rates: A 1% increase in interest rates can reduce your buying power by approximately 10%.
Down Payment: A larger down payment reduces your monthly loan amount and may eliminate the need for Private Mortgage Insurance (PMI).
Property Taxes: These vary wildly by state and county. A home in a high-tax area will lower your maximum purchase price because more of your monthly budget goes to the government.
Homeowners Insurance: Areas prone to natural disasters will have higher insurance premiums, eating into your monthly payment capacity.
Realistic Example:
Imagine a couple earning $100,000 per year with $500 in monthly car payments. They have $40,000 saved for a down payment.
At a 6.5% interest rate and a 43% DTI limit, they could afford a home priced at approximately $445,000. Their monthly PITI payment would be roughly $3,083, which fits within their debt limits.
Tips for Increasing Your Buying Power
If the calculator shows a lower number than you expected, consider these steps:
Pay down high-interest debt: Reducing your monthly credit card or car payments directly increases the amount a lender will give you for a mortgage.
Improve your credit score: A higher score qualifies you for lower interest rates, which significantly lowers your monthly principal and interest payment.
Save a larger down payment: This reduces the loan-to-value ratio and can remove the cost of PMI, saving you hundreds of dollars per month.
function calculateHomeAffordability() {
var income = parseFloat(document.getElementById('annualIncome').value);
var monthlyDebt = parseFloat(document.getElementById('monthlyDebt').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var annualInterestRate = parseFloat(document.getElementById('interestRate').value);
var loanTermYears = parseFloat(document.getElementById('loanTerm').value);
var taxRate = parseFloat(document.getElementById('propertyTax').value) / 100;
var annualInsurance = parseFloat(document.getElementById('homeInsurance').value);
var dtiLimit = parseFloat(document.getElementById('dtiLimit').value);
if (isNaN(income) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(annualInterestRate)) {
alert("Please enter valid numeric values.");
return;
}
// 1. Calculate Max Monthly PITI based on DTI
var monthlyGrossIncome = income / 12;
var maxTotalMonthlyDebtAllowed = monthlyGrossIncome * dtiLimit;
var maxMonthlyPITI = maxTotalMonthlyDebtAllowed – monthlyDebt;
if (maxMonthlyPITI <= (annualInsurance / 12)) {
alert("Your debts are too high relative to your income to afford a mortgage under these constraints.");
return;
}
// 2. Math to solve for Home Price
// Monthly PITI = Principal&Interest + MonthlyTax + MonthlyInsurance
// var P = Home Price, D = Down Payment, L = Loan (P – D)
// Principal&Interest = L * [i(1+i)^n] / [(1+i)^n – 1]
// where i = monthly interest rate, n = total months
var i = (annualInterestRate / 100) / 12;
var n = loanTermYears * 12;
var monthlyInsurance = annualInsurance / 12;
// Amortization Factor (M)
var mFactor = (i * Math.pow(1 + i, n)) / (Math.pow(1 + i, n) – 1);
// Monthly Tax Factor (T) based on Home Price
var tFactor = taxRate / 12;
// Equation: maxMonthlyPITI = (HomePrice – DownPayment) * mFactor + (HomePrice * tFactor) + monthlyInsurance
// maxMonthlyPITI – monthlyInsurance + (DownPayment * mFactor) = HomePrice * (mFactor + tFactor)
var numerator = maxMonthlyPITI – monthlyInsurance + (downPayment * mFactor);
var denominator = mFactor + tFactor;
var maxHomePrice = numerator / denominator;
var loanAmount = maxHomePrice – downPayment;
// Handle edge cases where down payment is larger than home price needed
if (maxHomePrice < downPayment) {
maxHomePrice = downPayment;
loanAmount = 0;
}
// 3. Display Results
document.getElementById('affordabilityResults').style.display = 'block';
document.getElementById('maxHomePrice').innerText = '$' + Math.round(maxHomePrice).toLocaleString();
document.getElementById('estLoanAmount').innerText = '$' + Math.round(loanAmount).toLocaleString();
document.getElementById('maxMonthlyPITI').innerText = '$' + Math.round(maxMonthlyPITI).toLocaleString();
}