Home Purchasing Power Estimator
Determine the maximum property value you can realistically sustain based on your financial profile.
How Home Affordability is Calculated
Financial institutions typically use the 28/36 rule to determine how much credit they are willing to extend for a property purchase. This guideline suggests that your housing-related expenses should not exceed 28% of your gross monthly income, and your total debt obligations (including the new housing payment) should not exceed 36%.
The Impact of Debt-to-Income (DTI)
Your DTI ratio is a critical factor in your purchasing power. If you have significant monthly outgoings—such as vehicle financing, student loans, or credit card balances—your capacity to take on a larger mortgage is reduced. This calculator prioritizes the "conservative" estimate by looking at both the 28% and 36% thresholds and selecting the lower value to ensure financial stability.
Realistic Example Scenarios
Consider a household with an Annual Household Income of $100,000. Their gross monthly income is approximately $8,333. Using the 28% rule, their maximum monthly housing payment is $2,333. If they have $500 in Monthly Debt Obligations, the 36% rule limits their total debt to $3,000, leaving $2,500 for housing. Since $2,333 is lower, that becomes the benchmark.
With an Initial Cash Contribution of $60,000 and a Market Financing Percentage of 7%, this household could likely afford a property valued at approximately $410,000, assuming a 30-year term and standard property tax/insurance estimates included in that monthly capacity.
Factors That Influence Your Budget
- Credit History: While not a direct input, your credit profile determines the Market Financing Percentage you qualify for. A lower percentage significantly increases your total purchasing power.
- Initial Liquidity: Your Initial Cash Contribution directly adds to the final home price. The more cash you provide upfront, the less you need to finance, reducing monthly costs.
- Local Tax Rates: Property taxes and insurance premiums vary by location. This calculator assumes roughly 1.2% for taxes and insurance, which is factored into your monthly capacity.