Mortgage Affordability Calculator
Understanding Mortgage Affordability
Determining how much house you can afford is a crucial step in the home-buying process. This Mortgage Affordability Calculator helps you estimate the maximum mortgage loan you might qualify for, based on your income, existing debts, and the potential terms of the loan.
Lenders typically use two main ratios to assess your ability to repay a mortgage: the Front-End Ratio (Housing Ratio) and the Back-End Ratio (Debt-to-Income Ratio or DTI).
- Front-End Ratio: This ratio compares your potential total monthly housing expenses (principal, interest, taxes, and insurance – PITI) to your gross monthly income. Lenders often prefer this to be no more than 28% of your gross monthly income.
- Back-End Ratio (DTI): This ratio compares all your monthly debt obligations (including the proposed mortgage payment, credit cards, car loans, student loans, etc.) to your gross monthly income. A common guideline is for this ratio to be no more than 36% of your gross monthly income, though some lenders may allow up to 43% or even higher depending on other factors.
This calculator uses a simplified approach based on the back-end ratio (DTI) to provide an estimated maximum loan amount. It factors in your current income and existing debts, assuming a target DTI of 36% and a common mortgage term. Your down payment, the interest rate, and the loan term significantly influence the maximum loan amount you can borrow and, consequently, the price of the home you can afford.
Important Considerations:
- This is an estimate. Actual loan approval depends on lender-specific criteria, credit score, loan type, and other financial factors.
- The calculator does not include property taxes, homeowner's insurance, or potential Private Mortgage Insurance (PMI), which are essential components of your total monthly housing cost (PITI).
- It's highly recommended to speak with a mortgage lender or financial advisor for a personalized assessment and pre-approval.