Estimate how much house you can actually afford based on your income and debts.
How Is Home Affordability Determined?
When lenders evaluate your mortgage application, they primarily look at your Debt-to-Income (DTI) ratio. This calculator uses the standard "36% Rule," which suggests that your total monthly debt payments (including your new mortgage) should not exceed 36% of your gross monthly income.
The 28/36 Rule Explained
Financial experts often use the 28/36 rule to determine affordability:
28%: Your maximum mortgage payment (Principal, Interest, Taxes, and Insurance) should not exceed 28% of your gross monthly income.
36%: Your total debt obligations (mortgage plus car loans, student loans, and credit card debt) should not exceed 36% of your income.
Example Calculation
If you earn $100,000 per year:
Gross Monthly Income: $8,333
Max Monthly Debt (36%): $3,000
If you have $500 in car loans, your available mortgage budget is $2,500 per month.
Factors That Impact Your Budget
1. Interest Rates: Even a 1% change in interest rates can swing your buying power by tens of thousands of dollars. Higher rates mean higher monthly payments for the same loan amount.
2. Down Payment: The more you put down, the lower your monthly payment and the more house you can buy. A 20% down payment also allows you to avoid Private Mortgage Insurance (PMI).
3. Property Taxes and Insurance: These are "hidden" costs that are often escrowed into your monthly payment. In high-tax states, this can significantly reduce the amount of loan you can carry.
Tips for Increasing Your Buying Power
To afford a more expensive home, consider paying down existing high-interest debts like credit cards or car loans first. This lowers your DTI and frees up more of your monthly income for a mortgage payment. Additionally, improving your credit score can help you qualify for lower interest rates.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById('annualIncome').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var monthlyDebts = parseFloat(document.getElementById('monthlyDebts').value);
var annualInterest = parseFloat(document.getElementById('interestRate').value);
var loanTerm = parseFloat(document.getElementById('loanTerm').value);
var annualTaxIns = parseFloat(document.getElementById('propertyTax').value);
if (isNaN(annualIncome) || isNaN(downPayment) || isNaN(monthlyDebts) || isNaN(annualInterest) || isNaN(loanTerm)) {
alert("Please enter valid numeric values in all fields.");
return;
}
// Monthly Gross Income
var monthlyGross = annualIncome / 12;
// Max total monthly debt allowed (36% DTI)
var maxMonthlyTotalDebt = monthlyGross * 0.36;
// Monthly allowance for Principal + Interest + Tax + Insurance (PITI)
var maxPITI = maxMonthlyTotalDebt – monthlyDebts;
// Monthly Tax and Insurance estimate
var monthlyTaxIns = annualTaxIns / 12;
// Maximum Monthly Principal and Interest (PI)
var maxPI = maxPITI – monthlyTaxIns;
if (maxPI <= 0) {
document.getElementById('afford-result-area').style.display = "block";
document.getElementById('totalBudget').innerHTML = "Budget is limited";
document.getElementById('budgetBreakdown').innerHTML = "Based on your current debts and income, your debt-to-income ratio is too high to qualify for a standard mortgage. Consider reducing monthly debts or increasing your down payment.";
return;
}
// Solve for Loan Amount (P) using: PMT = P * [i(1+i)^n] / [(1+i)^n – 1]
// Where i = monthly interest, n = total months
var i = (annualInterest / 100) / 12;
var n = loanTerm * 12;
var loanAmount = maxPI * (Math.pow(1 + i, n) – 1) / (i * Math.pow(1 + i, n));
var totalHomePrice = loanAmount + downPayment;
// Format numbers
var formattedPrice = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD' }).format(totalHomePrice);
var formattedMonthly = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD' }).format(maxPITI);
var formattedLoan = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD' }).format(loanAmount);
// Display Results
document.getElementById('afford-result-area').style.display = "block";
document.getElementById('totalBudget').innerHTML = "Your Estimated Budget: " + formattedPrice;
document.getElementById('budgetBreakdown').innerHTML =
"Based on your income, your max affordable monthly mortgage payment (PITI) is " + formattedMonthly + "." +
"Max Loan Amount: " + formattedLoan + "" +
"Down Payment: " + new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD' }).format(downPayment) + "" +
"Note: This estimate assumes a " + (annualInterest) + "% interest rate and includes your annual taxes/insurance estimate.";
}