Estimate how much you might be able to borrow for a mortgage based on your income and expenses.
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Your estimated borrowing power: $0
Understanding Your Mortgage Affordability
Determining how much you can borrow for a mortgage is a crucial step in the home-buying process. This calculator helps you estimate your potential borrowing power by considering your income, existing debts, down payment, and the terms of the loan.
How the Calculation Works:
Lenders typically use a Debt-to-Income (DTI) ratio to assess your ability to manage mortgage payments. There are two common DTI benchmarks:
Front-End DTI (Housing Ratio): This is the percentage of your gross monthly income that would go towards your housing costs (principal, interest, taxes, insurance, and HOA fees – PITI). Lenders often prefer this to be around 28% or lower.
Back-End DTI (Total Debt Ratio): This is the percentage of your gross monthly income that goes towards all your monthly debt obligations, including your potential mortgage payment, credit cards, car loans, student loans, etc. Lenders often prefer this to be around 36% or lower, though some may go up to 43% or even higher depending on other factors.
This calculator primarily focuses on the back-end DTI to provide an estimated maximum loan amount. Here's a simplified breakdown of the logic:
Calculate Gross Monthly Income: Annual Income / 12
Calculate Maximum Allowable Monthly Debt (using a common back-end DTI of 36%): Gross Monthly Income * 0.36
Calculate Available Monthly Funds for Mortgage: Maximum Allowable Monthly Debt – Total Monthly Debt Payments
Estimate Maximum Loan Amount: This is the trickiest part as it depends on interest rates and loan terms. We use a mortgage payment formula (M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]) rearranged to solve for P (Principal/Loan Amount).
'i' is the monthly interest rate (Annual Interest Rate / 12 / 100).
'n' is the total number of payments (Loan Term in Years * 12).
'M' is the maximum monthly mortgage payment (Available Monthly Funds for Mortgage).
Adjust for Down Payment: The estimated borrowing power calculated from the loan amount is then added to your down payment to give you a total estimated home purchase price you might afford.
Factors Influencing Borrowing Power:
Credit Score: A higher credit score generally leads to lower interest rates and can increase the amount you can borrow.
Loan Type: Different loan programs (e.g., FHA, VA, Conventional) have different DTI requirements and loan limits.
Property Taxes and Homeowner's Insurance: These vary by location and property type and significantly impact your PITI.
Other Debts: Any outstanding loans or credit card balances will reduce the amount you can allocate to a mortgage payment.
Lender Policies: Each lender has its own underwriting guidelines and risk tolerance.
Disclaimer:
This calculator provides an estimation only and should not be considered a loan pre-approval or guarantee. It uses general assumptions and may not reflect your specific financial situation or a lender's exact criteria. It is highly recommended to speak with a mortgage professional for accurate pre-approval and personalized advice.
function calculateBorrowingPower() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseInt(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
var resultSpan = resultDiv.querySelector("span");
// Input validation
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultSpan.textContent = "$0";
alert("Please enter valid numbers for all fields.");
return;
}
if (annualIncome <= 0 || monthlyDebt < 0 || downPayment < 0 || interestRate <= 0 || loanTerm <= 0) {
resultSpan.textContent = "$0";
alert("Please enter positive values for income, interest rate, and loan term. Debt and down payment cannot be negative.");
return;
}
// — Calculation Logic —
// 1. Calculate Gross Monthly Income
var grossMonthlyIncome = annualIncome / 12;
// 2. Define DTI ratios (common benchmarks)
var maxFrontEndDTIRatio = 0.28; // Housing ratio
var maxBackEndDTIRatio = 0.36; // Total debt ratio
// 3. Calculate Maximum Allowable Monthly Debt (Back-End DTI)
var maxAllowableMonthlyDebt = grossMonthlyIncome * maxBackEndDTIRatio;
// 4. Calculate Available Monthly Funds for Mortgage
// This is the maximum payment the borrower can afford after paying other debts
var availableMonthlyMortgagePayment = maxAllowableMonthlyDebt – monthlyDebt;
// Ensure available funds are not negative
if (availableMonthlyMortgagePayment 0 && numberOfPayments > 0) {
// Using the formula for Present Value of an Annuity (to find loan principal P)
// P = M * [1 – (1 + i)^-n] / i
maxLoanAmount = availableMonthlyMortgagePayment * (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate;
} else if (availableMonthlyMortgagePayment > 0) {
// If interest rate is 0 or loan term is 0 (unlikely but for safety),
// it means the entire available amount goes to principal.
// However, a 0 interest rate or 0 term loan is not realistic for mortgages.
// We'll assume a minimal loan term if 0 is entered for safety, or treat as invalid.
// For practical purposes, if rate or term is 0, borrowing power is effectively limited by other factors.
// For this calculator, we'll return 0 if rate or term is invalid.
if (interestRate <= 0 || loanTerm <= 0) {
maxLoanAmount = 0;
}
}
// 6. Calculate Estimated Total Affordability (Loan Amount + Down Payment)
var estimatedTotalAffordability = maxLoanAmount + downPayment;
// Format the result to two decimal places and add commas
var formattedAffordability = estimatedTotalAffordability.toFixed(2);
formattedAffordability = formattedAffordability.replace(/\B(?=(\d{3})+(?!\d))/g, ",");
resultSpan.textContent = "$" + formattedAffordability;
}