The Mortgage Borrowing Calculator helps you estimate the maximum amount a lender might be willing to lend you for a mortgage. This is a crucial step in the home-buying process, allowing you to set realistic expectations for the type of property you can afford.
How is Borrowing Power Calculated?
Lenders assess your borrowing capacity primarily through your Debt-to-Income (DTI) ratio. The DTI ratio is a personal financial metric that compares your monthly debt payments to your gross monthly income. Lenders use DTI to gauge your ability to manage monthly mortgage payments and other debts, which helps them determine your risk level as a borrower.
In this calculator, we work backward to estimate your maximum borrowing power. The calculation is based on the following logic:
Calculate Gross Monthly Income: The calculator first determines your gross monthly income by dividing your annual income by 12.
Determine Maximum Allowable Monthly Debt: It then calculates the maximum total monthly debt you can afford based on your chosen DTI ratio limit.
Max Allowable Monthly Debt = (Gross Monthly Income / 100) * DTI Ratio Limit
Calculate Maximum Housing Payment: The calculator subtracts your existing monthly debt payments from the maximum allowable monthly debt to find out how much you have left for a mortgage payment.
Max Housing Payment = Max Allowable Monthly Debt – Existing Monthly Debt Payments
Estimate Maximum Borrowing Amount: While this calculator focuses on the payment side, lenders use this maximum housing payment along with interest rates, loan terms, and other factors to determine the total loan amount you can borrow. For simplicity, this calculator presents the "Maximum Borrowing Power" as the total monthly housing payment you can afford, which is the most direct output of the DTI calculation. Note: This is an estimate. The actual loan amount will depend on many other factors like credit score, down payment, loan type, and prevailing interest rates.
Key Inputs Explained:
Annual Household Income: The total gross income of all borrowers before taxes and deductions.
Estimated Monthly Debt Payments: This includes all recurring monthly payments for loans (car, student), credit cards, personal loans, and other financial obligations, *excluding* your current rent or existing mortgage.
Proposed Monthly Mortgage Payment: This is an estimate of your future monthly housing expense, which typically includes Principal, Interest, Property Taxes, Homeowner's Insurance (PITI), and potentially HOA fees. You might estimate this based on your desired price range.
Debt-to-Income (DTI) Ratio Limit: This is the maximum percentage of your gross monthly income that lenders are willing to allow for all your monthly debt obligations, including the proposed mortgage. Common limits are 36% to 43%, but can vary by lender and loan program.
Why This Matters
Understanding your borrowing power is essential for:
Setting a Realistic Budget: Prevents you from looking at homes outside your financial reach.
Streamlining the Loan Process: Knowing your limits can help you prepare the necessary documentation and understand lender requirements.
Negotiating Power: Being pre-approved based on a solid understanding of your finances gives you more confidence when making an offer.
Disclaimer: This calculator provides an estimation and should not be considered a loan approval or a guarantee of borrowing. Consult with a mortgage professional for personalized advice and an accurate assessment of your borrowing capacity.
function calculateBorrowingPower() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebtPayments = parseFloat(document.getElementById("monthlyDebtPayments").value);
var proposedMortgagePayment = parseFloat(document.getElementById("proposedMortgagePayment").value);
var dtiLimit = parseFloat(document.getElementById("debtToIncomeRatioLimit").value);
var resultDiv = document.getElementById("result");
var resultAmountDiv = document.getElementById("result-amount");
var resultMessageDiv = document.getElementById("result-message");
// Clear previous results
resultAmountDiv.textContent = "$0";
resultMessageDiv.textContent = "";
resultDiv.style.backgroundColor = "var(–success-green)"; // Reset to default green
// Validate inputs
if (isNaN(annualIncome) || annualIncome <= 0) {
resultMessageDiv.textContent = "Please enter a valid annual income.";
return;
}
if (isNaN(monthlyDebtPayments) || monthlyDebtPayments < 0) {
resultMessageDiv.textContent = "Please enter a valid monthly debt payment (can be 0).";
return;
}
if (isNaN(proposedMortgagePayment) || proposedMortgagePayment <= 0) {
resultMessageDiv.textContent = "Please enter a valid proposed monthly mortgage payment.";
return;
}
if (isNaN(dtiLimit) || dtiLimit <= 0) {
resultMessageDiv.textContent = "Please select a valid DTI ratio limit.";
return;
}
var grossMonthlyIncome = annualIncome / 12;
// Calculate maximum allowable total monthly debt based on DTI limit
var maxAllowableMonthlyDebt = (grossMonthlyIncome * dtiLimit) / 100;
// Calculate how much is left for the mortgage payment
var calculatedMaxHousingPayment = maxAllowableMonthlyDebt – monthlyDebtPayments;
// Ensure the calculated housing payment is not negative
if (calculatedMaxHousingPayment calculatedMaxHousingPayment) {
resultMessageDiv.textContent = "Your proposed mortgage payment may exceed your borrowing capacity based on the chosen DTI limit. Consider a lower payment or increasing income/reducing debt.";
resultDiv.style.backgroundColor = "#ffc107"; // Yellow for caution
} else {
resultMessageDiv.textContent = "This is an estimate based on the DTI ratio. Actual loan amounts may vary.";
resultDiv.style.backgroundColor = "var(–success-green)"; // Back to green if within limits
}
// Display the result
resultAmountDiv.textContent = "$" + calculatedMaxHousingPayment.toFixed(0).replace(/\B(?=(\d{3})+(?!\d))/g, ",");
}