Home Affordability Calculator
You can afford a home up to:
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Total Loan Amount:
Total Loan Amount:
How Much House Can I Afford? A Comprehensive Guide
Determining your home buying budget is the most critical step in the real estate journey. While banks may pre-approve you for a certain amount, understanding the math behind home affordability ensures you don't become "house poor."
Understanding the Debt-to-Income (DTI) Ratio
Lenders primarily use the Debt-to-Income ratio to determine how much they are willing to lend you. There are two types of DTI:
- Front-End Ratio: The percentage of your gross income that goes toward housing costs (mortgage, insurance, taxes). Lenders typically prefer this to be 28% or less.
- Back-End Ratio: The percentage of your gross income that goes toward ALL debts, including car loans, student loans, and credit cards. A common benchmark is 36%, though some programs allow up to 43% or even 50%.
Factors That Influence Your Budget
Our calculator uses several data points to give you a realistic estimate:
- Annual Gross Income: Your total earnings before taxes.
- Down Payment: The more you put down, the lower your monthly loan payment will be and the higher your total home price capability.
- Interest Rate: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars.
- Monthly Debts: Existing liabilities reduce the amount of monthly income available for a mortgage.
Real-World Example
Imagine a household earning $100,000 per year with $500 in monthly debt and a $60,000 down payment. At a 7% interest rate on a 30-year term:
The monthly gross income is $8,333. Using a 36% DTI, the total allowed debt is $3,000. Subtracting the $500 existing debt leaves $2,500 for the mortgage payment. Based on current rates, that $2,500 monthly payment supports a loan of roughly $375,000. Adding the $60,000 down payment, the total affordable home price would be approximately $435,000.