Estimate the maximum home price you can afford based on your financial situation.
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Understanding Your House Affordability
Determining how much house you can afford is a crucial step in the home-buying process. This calculator helps you estimate the maximum home price you can realistically purchase by considering your income, existing debts, available down payment, and prevailing mortgage interest rates.
The Math Behind the Affordability Estimate
Our calculator uses a common guideline and a structured approach to estimate affordability. The core principle is that your total housing costs (including mortgage principal and interest, property taxes, homeowner's insurance, and potentially HOA fees) should not exceed a certain percentage of your gross monthly income. Additionally, your total debt obligations (including the new mortgage payment) should not exceed another percentage of your gross monthly income.
Key Components:
Gross Annual Income: Your total income before taxes and other deductions. This is the primary basis for determining how much you can afford.
Total Monthly Debt Payments: This includes payments for all existing loans (car loans, student loans, personal loans, credit card minimums, etc.), excluding the potential new mortgage payment. Lenders use this to assess your overall debt-to-income ratio (DTI).
Available Down Payment: The amount of cash you have saved to put towards the purchase of the home. A larger down payment reduces the loan amount needed and can improve your borrowing terms.
Estimated Mortgage Interest Rate: The annual interest rate you expect to pay on your mortgage. This significantly impacts your monthly mortgage payment.
Mortgage Loan Term: The length of time over which you will repay the mortgage loan (e.g., 15, 20, 30 years). A shorter term results in higher monthly payments but less interest paid overall.
How the Estimate is Calculated (Simplified):
While lenders use complex algorithms, a common rule of thumb involves two primary debt-to-income (DTI) ratios:
Front-End Ratio (Housing Ratio): Your total monthly housing costs (Principal, Interest, Taxes, Insurance – PITI) should ideally be no more than 28% of your gross monthly income.
Back-End Ratio (Total Debt Ratio): Your total monthly debt payments (PITI + all other debts) should ideally be no more than 36% of your gross monthly income.
Our calculator works backward. It first calculates the maximum monthly mortgage payment you can afford based on these DTI ratios, considering your income and existing debts. Then, using a standard mortgage payment formula (the amortization formula), it determines the maximum loan amount you could support with that monthly payment, given the estimated interest rate and loan term. Finally, it adds your down payment to this maximum loan amount to suggest the maximum affordable house price.
Mortgage Payment Formula (M):
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
n = Total number of payments (Loan term in years * 12)
This calculator provides an estimate. Actual affordability can vary based on lender policies, credit score, additional closing costs, and personal financial priorities.
When to Use This Calculator:
Early Planning: Get a realistic idea of your budget before you start house hunting.
Financial Goal Setting: Understand how much you need to save for a down payment and how to manage existing debt to afford a specific home price.
Comparing Scenarios: See how changes in interest rates, loan terms, or income might affect your buying power.
Remember to consult with a mortgage professional for personalized advice and pre-approval.
function calculateAffordability() {
var grossAnnualIncome = parseFloat(document.getElementById("grossAnnualIncome").value);
var monthlyDebtPayments = parseFloat(document.getElementById("monthlyDebtPayments").value);
var downPaymentAmount = parseFloat(document.getElementById("downPaymentAmount").value);
var estimatedInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var loanTermYears = parseInt(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// — Input Validation —
if (isNaN(grossAnnualIncome) || grossAnnualIncome <= 0) {
resultDiv.innerHTML = "Please enter a valid Gross Annual Income.";
return;
}
if (isNaN(monthlyDebtPayments) || monthlyDebtPayments < 0) {
resultDiv.innerHTML = "Please enter a valid Monthly Debt Payments amount (or 0).";
return;
}
if (isNaN(downPaymentAmount) || downPaymentAmount < 0) {
resultDiv.innerHTML = "Please enter a valid Down Payment amount (or 0).";
return;
}
if (isNaN(estimatedInterestRate) || estimatedInterestRate 20) {
resultDiv.innerHTML = "Please enter a valid Estimated Interest Rate (between 0.1% and 20%).";
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
resultDiv.innerHTML = "Please select a valid Loan Term.";
return;
}
// — Calculations —
var grossMonthlyIncome = grossAnnualIncome / 12;
// Target housing payment (PITI) based on 28% rule
var maxHousingPayment = grossMonthlyIncome * 0.28;
// Target total debt payment (PITI + other debts) based on 36% rule
var maxTotalDebtPayment = grossMonthlyIncome * 0.36;
// Maximum allowed mortgage payment (P&I only)
// This is the lower of:
// 1. The max housing payment
// 2. The max total debt payment minus existing monthly debts
var maxMortgagePayment = Math.min(maxHousingPayment, maxTotalDebtPayment – monthlyDebtPayments);
// Ensure maxMortgagePayment is not negative
if (maxMortgagePayment 0) {
var monthlyInterestRate = estimatedInterestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
// Handle potential division by zero or invalid scenarios in the formula
if (monthlyInterestRate > 0 && numberOfPayments > 0) {
var numerator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
if (denominator > 0) {
principalLoanAmount = maxMortgagePayment * (denominator / numerator);
} else if (numerator > 0) { // Case where denominator is zero or very close (e.g., 0% interest, though handled above)
principalLoanAmount = maxMortgagePayment * numberOfPayments; // Simple calculation for 0% interest, but we check rate > 0
}
} else if (monthlyInterestRate === 0) { // Explicitly handle 0% interest rate if logic allowed it
principalLoanAmount = maxMortgagePayment * numberOfPayments;
}
}
// Maximum affordable house price = Principal Loan Amount + Down Payment
var maxAffordablePrice = principalLoanAmount + downPaymentAmount;
// Rounding for display
var formattedMaxAffordablePrice = Math.round(maxAffordablePrice).toLocaleString();
var formattedMaxMortgagePayment = maxMortgagePayment.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var formattedPrincipalLoanAmount = Math.round(principalLoanAmount).toLocaleString();
// Display result
resultDiv.innerHTML = "Maximum Affordable House Price: $" + formattedMaxAffordablePrice + "" +
"(Estimated max monthly Principal & Interest payment: $" + formattedMaxMortgagePayment + ")" +
"(Based on an estimated loan amount of up to $" + formattedPrincipalLoanAmount + ")";
}