*This estimate includes an allowance for taxes and insurance (approx. 1.25% of home value annually).
How Much House Can You Really Afford?
Buying a home is the largest financial commitment most people ever make. To determine your "buying power," lenders look closely at your Debt-to-Income (DTI) ratio. This ratio compares how much you owe each month to how much you earn.
The 36% Rule
Most financial experts recommend the "36% rule," which suggests that your total debt payments (including your new mortgage, car loans, and credit cards) should not exceed 36% of your gross monthly income. This calculator defaults to a range between 36% and 43% to provide a realistic view of what a bank might lend you versus what is comfortable for your lifestyle.
Key Factors in Home Affordability
Gross Annual Income: Your total earnings before taxes.
Down Payment: The cash you have upfront. A higher down payment reduces your monthly loan amount and may eliminate the need for Private Mortgage Insurance (PMI).
Existing Debt: Monthly obligations like student loans, car notes, and minimum credit card payments decrease the amount you can put toward a mortgage.
Interest Rates: Even a 1% difference in interest rates can change your buying power by tens of thousands of dollars.
Example Scenario
Factor
Value
Annual Income
$100,000
Monthly Debts
$500
Down Payment
$50,000
Estimated Budget
~$425,000 (at 6.5% interest)
Taxes and Insurance
Our calculator accounts for approximately 1.25% of the home's value for annual property taxes and homeowners insurance. These costs are often bundled into your monthly mortgage payment (known as PITI: Principal, Interest, Taxes, and Insurance).
function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value) || 0;
var downPayment = parseFloat(document.getElementById("downPayment").value) || 0;
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var dtiLimit = parseFloat(document.getElementById("dtiRatio").value) / 100;
if (isNaN(annualIncome) || isNaN(interestRate) || annualIncome <= 0) {
alert("Please enter valid income and interest rate values.");
return;
}
// 1. Calculate max monthly debt allowed
var monthlyGrossIncome = annualIncome / 12;
var maxTotalMonthlyDebt = monthlyGrossIncome * dtiLimit;
// 2. Subtract current debts to find available for PITI (Principal, Interest, Tax, Insurance)
var availableForPITI = maxTotalMonthlyDebt – monthlyDebt;
if (availableForPITI <= 0) {
document.getElementById("maxHomePrice").innerHTML = "Insufficient Income";
document.getElementById("monthlyPITI").innerHTML = "Your current debts exceed the recommended DTI ratio.";
document.getElementById("affordabilityResult").style.display = "block";
return;
}
// 3. Estimate Taxes and Insurance (approx 1.25% of home value annually = 0.00104 of value monthly)
// We need to solve for Price:
// PITI = [LoanAmount * (r(1+r)^n / ((1+r)^n – 1))] + (Price * 0.0125 / 12)
// LoanAmount = Price – DownPayment
var r = (interestRate / 100) / 12;
var n = loanTerm * 12;
var taxInsFactor = 0.0125 / 12;
// Amortization Factor (M)
var amortFactor = (r * Math.pow(1 + r, n)) / (Math.pow(1 + r, n) – 1);
// Algebra:
// PITI = (Price – DownPayment) * amortFactor + Price * taxInsFactor
// PITI = Price * amortFactor – DownPayment * amortFactor + Price * taxInsFactor
// PITI + DownPayment * amortFactor = Price * (amortFactor + taxInsFactor)
// Price = (PITI + DownPayment * amortFactor) / (amortFactor + taxInsFactor)
var maxHomePrice = (availableForPITI + (downPayment * amortFactor)) / (amortFactor + taxInsFactor);
if (maxHomePrice < downPayment) {
maxHomePrice = downPayment;
}
var loanAmount = maxHomePrice – downPayment;
var monthlyPI = loanAmount * amortFactor;
var monthlyTaxIns = maxHomePrice * taxInsFactor;
var totalMonthly = monthlyPI + monthlyTaxIns;
// Display results
document.getElementById("maxHomePrice").innerHTML = "$" + Math.round(maxHomePrice).toLocaleString();
document.getElementById("monthlyPITI").innerHTML = "Estimated Monthly Payment: $" + Math.round(totalMonthly).toLocaleString() +
"(Principal & Interest: $" + Math.round(monthlyPI).toLocaleString() + ", Taxes & Insurance: $" + Math.round(monthlyTaxIns).toLocaleString() + ")";
document.getElementById("affordabilityResult").style.display = "block";
}