Buying a home is the most significant financial decision most people make. To determine your "buying power," lenders primarily look at your Debt-to-Income (DTI) ratio. This ratio compares how much you owe each month to how much you earn.
Most traditional lenders prefer a DTI ratio of 36% or lower, though many programs allow for up to 43% or even 50% in specific circumstances. Our calculator uses these industry standards to estimate a loan amount that won't overextend your finances.
Key Factors Affecting Your Budget
Gross Annual Income: Your total earnings before taxes. Lenders use gross income because it provides a consistent baseline for all borrowers.
Existing Monthly Debt: This includes student loans, car payments, and minimum credit card payments. The more debt you have, the less of your income is available for a mortgage.
Interest Rates: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars.
The Down Payment: A larger down payment reduces the loan-to-value ratio, which can lower your interest rate and eliminate the need for Private Mortgage Insurance (PMI).
Example Affordability Scenarios
Annual Income
Monthly Debt
Down Payment
Estimated Budget*
$60,000
$300
$20,000
~$245,000
$100,000
$500
$50,000
~$425,000
$150,000
$800
$100,000
~$680,000
*Estimates based on a 6.5% interest rate and 43% DTI ratio. Actual rates vary by credit score and location.
Strategies to Increase Your Affordability
If the results from the calculator are lower than you hoped, consider these three strategies:
Reduce Existing Debt: Paying off a car loan or credit card can significantly lower your DTI, allowing for a higher monthly mortgage payment.
Improve Your Credit Score: A higher credit score qualifies you for lower interest rates, which increases the amount you can borrow with the same monthly payment.
Save a Larger Down Payment: Every extra dollar you put down is a dollar you don't have to pay interest on, directly increasing the value of the home you can buy.
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById('annualIncome').value);
var monthlyDebt = parseFloat(document.getElementById('monthlyDebt').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var annualRate = parseFloat(document.getElementById('interestRate').value);
var termYears = parseInt(document.getElementById('loanTerm').value);
var dtiLimit = parseFloat(document.getElementById('dtiRatio').value);
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(annualRate)) {
alert("Please enter valid numbers in all fields.");
return;
}
// 1. Calculate Monthly Gross Income
var monthlyGross = annualIncome / 12;
// 2. Calculate Max Total Monthly Debt Allowed
var maxTotalMonthlyPayment = monthlyGross * dtiLimit;
// 3. Calculate Max Mortgage Payment (PITI)
// We must subtract existing debts from the DTI limit
var availableForPITI = maxTotalMonthlyPayment – monthlyDebt;
// 4. Estimate Taxes and Insurance (usually ~1.2% of home value annually, approx 15% of payment)
// To be conservative and provide a usable estimate, we'll assume 20% of the payment goes to Taxes/Insurance
var availableForPI = availableForPITI * 0.80;
if (availableForPI <= 0) {
document.getElementById('affordResult').style.display = 'block';
document.getElementById('maxHomePrice').innerHTML = "Insufficient Income";
document.getElementById('resultDetails').innerHTML = "Your current monthly debts exceed the recommended debt-to-income ratio for a new mortgage.";
return;
}
// 5. Reverse Mortgage Formula to find Loan Amount
// Formula: L = P * [ (1 – (1 + r)^-n) / r ]
var monthlyRate = (annualRate / 100) / 12;
var numberOfPayments = termYears * 12;
var loanAmount = availableForPI * ((1 – Math.pow(1 + monthlyRate, -numberOfPayments)) / monthlyRate);
// 6. Total Home Price = Loan + Down Payment
var totalHomePrice = loanAmount + downPayment;
// Formatting
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById('affordResult').style.display = 'block';
document.getElementById('maxHomePrice').innerHTML = formatter.format(totalHomePrice);
document.getElementById('resultDetails').innerHTML =
"Based on your income, you could qualify for a mortgage of approximately " + formatter.format(loanAmount) + ". " +
"This assumes a maximum monthly principal and interest payment of " + formatter.format(availableForPI) + " " +
"to stay within a " + (dtiLimit * 100) + "% debt-to-income ratio.";
// Scroll to result
document.getElementById('affordResult').scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}