*Based on a 36% Debt-to-Income (DTI) ratio, including estimated 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 lender might pre-approve you for a specific amount, understanding your personal home affordability is crucial for long-term financial stability. Our calculator uses the standard "36% Rule" to help you determine a comfortable purchase price based on your current income and existing debt obligations.
Key Factors in Determining Affordability
Debt-to-Income Ratio (DTI): Lenders typically prefer that your total monthly debts (including your new mortgage, taxes, and insurance) do not exceed 36% of your gross monthly income. Some loan programs allow up to 43% or 50%, but 36% is considered the "gold standard" for financial health.
Down Payment: The more you put down upfront, the lower your monthly loan payment will be. A 20% down payment also allows you to avoid Private Mortgage Insurance (PMI).
Interest Rates: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars.
Hidden Costs: Remember to account for property taxes, homeowners insurance, and HOA fees, which are included in our "Total Monthly Payment" calculation.
Example Calculation
Let's look at a realistic scenario for a middle-income family:
Suppose a household earns $85,000 per year and has $500 in monthly recurring debt (car loans, student loans, or credit cards). If they have $40,000 saved for a down payment and the current interest rate is 7.0% on a 30-year term:
Monthly Gross Income: $7,083
Max Monthly Debt (36%): $2,550
Available for Housing: $2,550 – $500 = $2,050
After estimating taxes and insurance, their Max Purchase Price would be approximately $285,000.
Tips for Improving Your Purchasing Power
If the results from the calculator are lower than you hoped, consider these strategies:
Reduce Existing Debt: Paying off a $300/month car loan can significantly increase your mortgage borrowing capacity.
Improve Your Credit Score: A higher credit score leads to lower interest rates, which directly lowers your monthly payment.
Save a Larger Down Payment: This reduces the principal loan amount and may eliminate the need for PMI.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var annualRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTerm").value);
var taxRate = parseFloat(document.getElementById("taxRate").value);
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(annualRate)) {
alert("Please enter valid numeric values.");
return;
}
// 1. Calculate Monthly Gross Income
var monthlyGross = annualIncome / 12;
// 2. Maximum Monthly Debt (36% DTI Rule)
var maxTotalMonthlyDebt = monthlyGross * 0.36;
// 3. Amount available for PITI (Principal, Interest, Taxes, Insurance)
var maxPITI = maxTotalMonthlyDebt – monthlyDebt;
if (maxPITI <= 0) {
document.getElementById("results-box").style.display = "block";
document.getElementById("maxHomePrice").innerHTML = "N/A";
document.getElementById("maxLoanAmount").innerHTML = "Insufficient Income";
document.getElementById("monthlyPayment").innerHTML = "$0";
return;
}
// 4. Estimate Taxes and Insurance (Approx 1.5% of home value annually for Taxes + 0.5% for Insurance/Misc)
// We adjust the monthly payment available to account for these items.
// Roughly 20% of the PITI usually goes to taxes/insurance.
var estMonthlyTaxesInsuranceRate = (taxRate / 100) + 0.003; // tax rate + ~0.3% for insurance
// Mortgage formula back-calculation
// P = [ r * PV ] / [ 1 – (1 + r)^-n ]
// However, we also have taxes based on PV (Home Value).
// var PV_total = Home Price. Loan = PV_total – DownPayment.
// MaxPITI = [Monthly Mortgage Payment] + [Monthly Taxes/Ins]
// MaxPITI = [(Loan * r) / (1 – (1+r)^-n)] + [PV_total * (estMonthlyTaxesInsuranceRate / 12)]
var r = (annualRate / 100) / 12;
var n = loanTermYears * 12;
var mFactor = (r * Math.pow(1 + r, n)) / (Math.pow(1 + r, n) – 1);
var tFactor = estMonthlyTaxesInsuranceRate / 12;
// MaxPITI = (HomePrice – DownPayment) * mFactor + HomePrice * tFactor
// MaxPITI = HomePrice * mFactor – DownPayment * mFactor + HomePrice * tFactor
// MaxPITI + DownPayment * mFactor = HomePrice * (mFactor + tFactor)
// HomePrice = (MaxPITI + DownPayment * mFactor) / (mFactor + tFactor)
var maxHomePrice = (maxPITI + (downPayment * mFactor)) / (mFactor + tFactor);
var maxLoan = maxHomePrice – downPayment;
if (maxLoan < 0) maxLoan = 0;
// Formatting
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById("maxHomePrice").innerHTML = formatter.format(maxHomePrice);
document.getElementById("maxLoanAmount").innerHTML = formatter.format(maxLoan);
document.getElementById("monthlyPayment").innerHTML = formatter.format(maxPITI);
document.getElementById("results-box").style.display = "block";
}