How to Calculate Variable Interest Rate

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Home Affordability Calculator

Estimate how much home you can afford based on your income and debts.

30 Years Fixed 20 Years Fixed 15 Years Fixed 10 Years Fixed
Based on the 36% Debt-to-Income Rule, you can afford a home worth: $0

How Is Home Affordability Calculated?

Buying a home is the most significant financial decision most people will ever make. To determine your "buying power," lenders typically look at your Debt-to-Income (DTI) ratio. Our Home Affordability Calculator uses the widely accepted 36% Rule, which suggests that your total debt payments (including your new mortgage, property taxes, and insurance) should not exceed 36% of your gross monthly income.

The 28/36 Rule Explained

Lenders use two primary ratios to determine how much they will lend you:

  • Front-End Ratio (28%): Your total monthly housing costs (Principal, Interest, Taxes, and Insurance – PITI) should not exceed 28% of your gross monthly income.
  • Back-End Ratio (36%): Your total monthly debt obligations (housing costs plus car loans, student loans, and credit card payments) should not exceed 36% of your gross monthly income.

Key Factors Influencing Your Buying Power

1. Gross Annual Income: This is your total income before taxes. Lenders use this as the baseline for what you can afford.

2. Existing Monthly Debt: Higher existing debts (like a $500/month car payment) directly reduce the amount of mortgage you can qualify for.

3. Down Payment: The more cash you bring to the table, the higher the home price you can afford without increasing your monthly loan payment.

4. Interest Rates: Even a 1% difference in interest rates can change your buying power by tens of thousands of dollars.

Example Calculation

Suppose you earn $100,000 per year ($8,333/month) and have $500 in monthly debts. Using the 36% rule, your maximum total debt payment is $3,000. Subtracting your $500 debt leaves $2,500 for your monthly mortgage, taxes, and insurance. With a 6.5% interest rate on a 30-year term and a $50,000 down payment, you could likely afford a home priced around $400,000 to $430,000 depending on local property tax rates.

function calculateAffordability() { 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 taxInsuranceRate = parseFloat(document.getElementById('propertyTax').value) / 100; if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate)) { alert("Please enter valid numeric values."); return; } // 1. Calculate Monthly Gross Income var monthlyGrossIncome = annualIncome / 12; // 2. Calculate Max Monthly PITI (Principal, Interest, Taxes, Insurance) // Using the 36% Back-end ratio rule var maxTotalMonthlyDebt = monthlyGrossIncome * 0.36; var maxMonthlyPITI = maxTotalMonthlyDebt – monthlyDebt; if (maxMonthlyPITI <= 0) { document.getElementById('affordability-result').style.display = "block"; document.getElementById('maxHomePrice').innerHTML = "Ineligible"; document.getElementById('monthlyBreakdown').innerHTML = "Your current monthly debts exceed 36% of your income. Consider reducing debt to increase affordability."; return; } // 3. Solve for Loan Amount // PITI = [P * (r(1+r)^n) / ((1+r)^n – 1)] + (HomePrice * TaxRate / 12) // Since Loan = HomePrice – DownPayment, we solve for Home Price var r = (interestRate / 100) / 12; var n = loanTerm * 12; var monthlyTaxRate = taxInsuranceRate / 12; // Monthly Payment Factor for P&I var piFactor = (r * Math.pow(1 + r, n)) / (Math.pow(1 + r, n) – 1); // Algebra: maxMonthlyPITI = (Price – Down) * piFactor + Price * monthlyTaxRate // maxMonthlyPITI = Price * piFactor – Down * piFactor + Price * monthlyTaxRate // maxMonthlyPITI + (Down * piFactor) = Price * (piFactor + monthlyTaxRate) // Price = (maxMonthlyPITI + (Down * piFactor)) / (piFactor + monthlyTaxRate) var maxHomePrice = (maxMonthlyPITI + (downPayment * piFactor)) / (piFactor + monthlyTaxRate); var loanAmount = maxHomePrice – downPayment; if (loanAmount < 0) { maxHomePrice = downPayment; loanAmount = 0; } // Format Results var formatter = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', maximumFractionDigits: 0 }); document.getElementById('affordability-result').style.display = "block"; document.getElementById('maxHomePrice').innerHTML = formatter.format(maxHomePrice); document.getElementById('monthlyBreakdown').innerHTML = "Estimated Monthly Mortgage (PITI): " + formatter.format(maxMonthlyPITI) + "" + "Estimated Loan Amount: " + formatter.format(loanAmount) + "" + "Down Payment: " + formatter.format(downPayment) + ""; }

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