Home Affordability Calculator
Estimate how much house you can afford based on your income and debts.
Estimated Comfortable Home Price
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Based on a 36% Debt-to-Income (DTI) ratio. This estimate considers your gross income minus existing debts and estimated property costs.
Understanding Home Affordability
Determining how much house you can afford is the most critical step in the home-buying process. While a bank might pre-approve you for a certain amount, your actual comfort level depends on your unique financial ecosystem, including monthly obligations, lifestyle spending, and future goals.
The 28/36 Rule
Lenders typically use the 28/36 rule to assess your borrowing power:
- The 28% Rule: Your mortgage payment (including taxes and insurance) should not exceed 28% of your gross monthly income.
- The 36% Rule: Your total debt payments (mortgage plus car loans, student loans, and credit cards) should not exceed 36% of your gross monthly income.
Key Factors Influencing Your Budget
Several variables determine your final "sticker price" capability:
- Debt-to-Income (DTI) Ratio: This is the percentage of your gross monthly income that goes toward paying debts. A lower DTI makes you a more attractive borrower.
- Down Payment: The more you put down, the lower your monthly payment and the higher the home price you can afford. 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 over a 30-year term.
- Hidden Costs: Don't forget property taxes, homeowners insurance, and HOA fees. These are "non-negotiable" monthly costs that eat into your mortgage principal budget.
Example Scenario
Suppose a household earns $100,000 per year. Their gross monthly income is $8,333. Using the 36% rule, their total monthly debt shouldn't exceed $3,000. If they have a $400 car payment and $200 in student loans, they have $2,400 left for their mortgage, taxes, and insurance. At a 6.5% interest rate, this might translate to a home price of roughly $350,000 to $380,000 depending on the down payment size.
Tips for Increasing Affordability
If the calculator shows a lower number than you hoped for, consider these strategies:
- Reduce Existing Debt: Paying off a car or credit card can significantly boost your DTI ratio.
- Improve Your Credit Score: A higher score qualifies you for lower interest rates, which lowers your monthly payment.
- Save a Larger Down Payment: This reduces the loan-to-value ratio and monthly interest costs.