Home Affordability Calculator
You can afford a home up to:
Estimated Monthly Payment (P&I):
Estimated Monthly Tax & Insurance:
Total Monthly Payment:
Debt-to-Income (DTI) Ratio:
36%
How Home Affordability is Calculated
Lenders typically use the 28/36 rule to determine how much they are willing to lend you. This rule suggests that your mortgage payment should not exceed 28% of your gross monthly income, and your total debt payments (including the new mortgage) should not exceed 36% to 43% of your income.
Key Factors in Your Home Budget
- Gross Annual Income: Your total earnings before taxes and deductions. This is the baseline for all affordability calculations.
- Debt-to-Income (DTI) Ratio: This compares your monthly debt obligations to your monthly income. A lower DTI indicates a lower risk to lenders.
- Down Payment: The cash you pay upfront. A higher down payment reduces your loan amount and can eliminate the need for Private Mortgage Insurance (PMI).
- Interest Rates: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars.
Example Calculation
If you earn $100,000 per year, your gross monthly income is $8,333. Using a 36% DTI limit, your total monthly debt (including the mortgage) should stay under $3,000. If you already pay $500/month for a car loan, your maximum mortgage payment would be roughly $2,500.
How to Increase Your Purchasing Power
To afford a more expensive home, you can focus on three main areas: reducing your existing monthly debts, increasing your credit score to secure a lower interest rate, or saving for a larger down payment. Small changes in your financial profile can lead to significant increases in the home price you can afford.