Home Affordability Calculator
Estimate the maximum home price you can afford based on your financial profile.
Estimated Maximum Home Price
$0
Monthly P&I: $0
Total Monthly Payment: $0
Recommended DTI: 36% (Back-end)
How Home Affordability is Calculated
Determining how much house you can afford involves more than just looking at your savings. Lenders primarily use the Debt-to-Income (DTI) ratio to assess your borrowing capacity. Most financial experts recommend the 28/36 rule: your mortgage payment shouldn't exceed 28% of your gross monthly income, and your total debt payments shouldn't exceed 36% to 43%.
This calculator uses a conservative 36% back-end DTI approach. It takes your gross monthly income, subtracts existing debts (like car loans or student loans), and allocates the remainder to your future mortgage, property taxes, and homeowners insurance.
Key Factors Influencing Your Buying Power
- Gross Annual Income: Your total earnings before taxes. Higher income naturally increases your loan eligibility.
- Debt-to-Income Ratio: If you have high credit card balances or car payments, your "room" for a mortgage payment shrinks significantly.
- 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.
- Down Payment: The more cash you put down, the lower your loan amount and monthly interest costs will be.
Example Scenario
Let's look at a realistic example: Imagine a couple earning $100,000 per year with $500 in monthly debts and $30,000 saved for a down payment. At a 6.5% interest rate on a 30-year loan, their maximum affordable home price would be approximately $385,000, assuming 1.5% for taxes and insurance. This ensures their total housing and debt obligations stay within a healthy financial range.
Tips for Increasing Your Affordability
If the results are lower than you hoped, consider these steps:
- Pay Down Debt: Reducing your monthly car or credit card payments immediately boosts your DTI ratio.
- Improve Your Credit Score: A higher score helps you qualify for lower interest rates, which reduces the monthly cost of the same loan amount.
- Save a Larger Down Payment: This directly reduces the amount you need to borrow and may eliminate the need for Private Mortgage Insurance (PMI).