Find out how much home you can actually afford based on your income and debts.
Your Estimated Purchasing Power
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How Much House Can I Afford?
Determining your home buying budget is the most critical step in the real estate journey. While banks often use complex algorithms, the primary metric they look at is your Debt-to-Income (DTI) ratio. This calculator uses the standard 36% rule, which suggests that your total monthly debt payments should not exceed 36% of your gross monthly income.
Key Factors in Home Affordability
Gross Annual Income: Your total earnings before taxes. This is the baseline for all lending decisions.
Down Payment: The cash you have upfront. A higher down payment reduces your loan amount and monthly interest costs.
Monthly Debt: This includes car loans, student loans, and credit card minimums. High existing debt significantly lowers your borrowing power.
Mortgage Interest Rates: Even a 1% difference in rates can change your purchasing power by tens of thousands of dollars.
Understanding the 28/36 Rule
Lenders typically prefer two benchmarks:
1. The 28% Rule: Your mortgage payment (including taxes and insurance) should not exceed 28% of your monthly gross income.
2. The 36% Rule: Your total debt (mortgage + other loans) should not exceed 36% of your monthly gross income.
Example Calculation
If you earn $100,000 annually, your gross monthly income is $8,333. Under the 36% rule, your total monthly debt shouldn't exceed $3,000. If you already pay $500 for a car loan, you have $2,500 available for your mortgage, taxes, and insurance.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById('annualIncome').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var monthlyDebts = parseFloat(document.getElementById('monthlyDebts').value);
var interestRate = parseFloat(document.getElementById('interestRate').value) / 100 / 12;
var loanTermMonths = parseFloat(document.getElementById('loanTerm').value) * 12;
var annualTaxRate = parseFloat(document.getElementById('propertyTax').value) / 100;
if (isNaN(annualIncome) || isNaN(downPayment) || isNaN(interestRate)) {
alert("Please enter valid numbers in all fields.");
return;
}
// Step 1: Calculate Monthly Gross Income
var monthlyGross = annualIncome / 12;
// Step 2: Apply 36% DTI Rule
var totalAllowableMonthlyDebt = monthlyGross * 0.36;
// Step 3: Subtract existing debts to find allowable PITI (Principal, Interest, Taxes, Insurance)
var allowablePITI = totalAllowableMonthlyDebt – monthlyDebts;
if (allowablePITI <= 0) {
document.getElementById('maxHomePrice').innerHTML = "Ineligible";
document.getElementById('monthlyBreakdown').innerHTML = "Your current monthly debts exceed the recommended 36% debt-to-income ratio.";
document.getElementById('affordResult').style.display = "block";
return;
}
// Step 4: Estimate Insurance and Taxes as part of the payment
// We assume taxes and insurance take up about 25% of the PITI payment for estimation purposes
var estimatedMonthlyTaxesAndIns = allowablePITI * 0.25;
var availableForPI = allowablePITI – estimatedMonthlyTaxesAndIns;
// Step 5: Solve for Loan Amount (Present Value of Annuity)
// Formula: PV = PMT * [(1 – (1 + r)^-n) / r]
var loanAmount = availableForPI * ((1 – Math.pow(1 + interestRate, -loanTermMonths)) / interestRate);
// Step 6: Total Home Price
var maxHomePrice = loanAmount + downPayment;
// Output formatting
if (maxHomePrice < downPayment) maxHomePrice = downPayment;
document.getElementById('maxHomePrice').innerHTML = "$" + Math.round(maxHomePrice).toLocaleString();
document.getElementById('monthlyBreakdown').innerHTML = "Based on your income, your maximum monthly mortgage payment (PITI) should be approximately $" + Math.round(allowablePITI).toLocaleString() + ".";
document.getElementById('affordResult').style.display = "block";
}