How Much Can I Afford Calculator
Determine your monthly budget based on the 28/36 rule.
Conservative Monthly Housing Budget (36% Rule)
$0.00
This accounts for your current debts to ensure total obligations don't exceed 36% of income.
Maximum Monthly Housing Budget (28% Rule)
$0.00
This is strictly based on 28% of your gross income, regardless of other debts.
Total Monthly Gross Income
$0.00
Understanding Home Affordability
Before searching for a new home or rental, it is crucial to understand your financial boundaries. The "How Much Can I Afford Calculator" uses industry-standard financial ratios to help you determine a sustainable monthly housing payment. Unlike a mortgage calculator, which focuses on interest rates and loan terms, this tool focuses on your specific budget and debt-to-income balance.
The 28/36 Rule Explained
Lenders and financial advisors often use the 28/36 rule to gauge affordability:
- The 28% Rule: This suggests that your total housing costs (including principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.
- The 36% Rule: This suggests that your total debt obligations (housing costs plus car payments, student loans, and credit card debt) should not exceed 36% of your gross monthly income.
Example Calculation
Imagine a household with an Annual Gross Income of $100,000 and Monthly Debts of $600.
- Monthly Gross Income: $100,000 / 12 = $8,333.
- 28% Limit: $8,333 * 0.28 = $2,333 maximum housing cost.
- 36% Limit: ($8,333 * 0.36) – $600 debts = $3,000 – $600 = $2,400.
- Result: In this scenario, the user should aim for a housing cost near $2,333 to stay within the safer 28% threshold.
Factors That Influence Your Budget
While the calculator provides a mathematical baseline, several lifestyle factors should influence your final decision:
- Lifestyle Expenses: Do you travel frequently? Do you have expensive hobbies? The calculator doesn't see your grocery or entertainment bills.
- Emergency Fund: It is wise to have 3-6 months of expenses saved before taking on a large monthly commitment.
- Future Changes: Consider potential changes in income or upcoming major expenses like starting a family or returning to school.
- Location: Property taxes and insurance rates vary wildly by ZIP code. Always research the specific area's tax rates.
How to Improve Your Affordability
If the results are lower than you hoped, there are three primary ways to increase your affordability:
- Reduce Monthly Debt: Paying off a car loan or credit card balance directly increases the "Conservative" budget result in our calculator.
- Increase Income: Raises, bonuses, or side income all increase the baseline gross income used for the calculations.
- Lower Your Insurance/Tax Estimates: Choosing homes in areas with lower property taxes can make a significant difference in what you can afford month-to-month.