Mortgage Affordability Calculator
Find out exactly how much home you can afford based on your income and debts.
Estimated Home Purchase Price
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Maximum Loan Amount:
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Estimated Monthly Payment (P&I):
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Estimated Monthly Tax & Insurance:
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Total Monthly Housing Expense:
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How Is Mortgage Affordability Calculated?
Lenders generally use the 28/36 Rule to determine how much they are willing to lend you. This rule suggests that your total housing expenses should not exceed 28% of your gross monthly income, and your total debt-to-income (DTI) ratio should not exceed 36%.
Understanding the Key Factors
- Gross Annual Income: Your total income before taxes. Lenders look at this to establish your baseline "ability to pay."
- Debt-to-Income Ratio (DTI): This includes your new mortgage payment plus car loans, student loans, and credit card minimums. A lower DTI usually results in better interest rates.
- Down Payment: The more you put down upfront, the lower your loan-to-value ratio, which decreases your monthly payment and interest costs.
- Interest Rates: Even a 1% difference in interest rates can change your buying power by tens of thousands of dollars.
Example Calculation
If you earn $100,000 per year, your gross monthly income is $8,333. Using the 28% rule, your maximum monthly mortgage payment (including taxes and insurance) should be around $2,333. If you have $500 in other monthly debts, your total DTI would stay within healthy limits.
With a 6.5% interest rate on a 30-year fixed loan and a $50,000 down payment, this income level could potentially support a home purchase price of approximately $345,000 to $375,000, depending on local property taxes and insurance costs.
Tips to Increase Your Buying Power
If the calculator shows a lower amount than you hoped for, consider these strategies:
- Pay down existing debt: Reducing car loans or credit card balances directly increases your DTI headroom.
- Improve your credit score: A higher score helps you qualify for lower interest rates, reducing the monthly cost of the same loan amount.
- Save for a larger down payment: This reduces the principal balance and may help you avoid Private Mortgage Insurance (PMI).