Determining how much house you can afford is a crucial step in the home-buying process. While lenders consider many factors, a common guideline is the 28/36 rule. This rule suggests that your total housing costs (including principal, interest, property taxes, and homeowner's insurance – often referred to as PITI) should not exceed 28% of your gross monthly income, and your total debt obligations (including PITI and other debts like car loans, student loans, and credit card payments) should not exceed 36% of your gross monthly income.
Key Inputs Explained:
Annual Household Income: This is your total income before taxes for the year. Lenders will verify this through pay stubs, tax returns, and W-2s.
Total Monthly Debt Payments: This includes all recurring monthly payments you make towards debts *other than* your potential mortgage. This typically includes car payments, student loan payments, minimum credit card payments, and any personal loan payments.
Down Payment: This is the initial amount of money you pay upfront towards the purchase of the home. A larger down payment can reduce your loan amount and potentially lower your monthly payments and interest paid over time.
Estimated Mortgage Interest Rate: This is the annual interest rate you expect to pay on your mortgage loan. Interest rates significantly impact your monthly payment and the total cost of the loan.
Mortgage Loan Term: This is the duration of the mortgage loan, usually expressed in years (e.g., 15, 30 years). A shorter term typically means higher monthly payments but less interest paid overall.
How the Calculator Works:
This calculator uses a common affordability guideline to estimate the maximum loan amount you might qualify for based on your income and existing debts. It also estimates the maximum home price you could afford, factoring in your down payment.
Important Considerations:
This calculator provides an estimate only. Your actual borrowing capacity may vary based on lender-specific criteria, your credit score, the property's location (affecting property taxes and insurance), private mortgage insurance (PMI) if your down payment is less than 20%, and other closing costs. It's highly recommended to speak with a mortgage lender for a pre-approval to get a precise understanding of your borrowing power.
Example Scenario:
Let's say your Annual Household Income is $90,000. Your Total Monthly Debt Payments (car loan, student loans) are $600. You have a Down Payment of $30,000. You're considering a mortgage with an Estimated Mortgage Interest Rate of 6.5% over a Mortgage Loan Term of 30 years.
Based on these inputs, the calculator will help you understand the potential maximum monthly mortgage payment you could manage and the approximate home price you might be able to afford.
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function calculateAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (annualIncome <= 0 || monthlyDebt < 0 || downPayment < 0 || interestRate <= 0 || loanTerm <= 0) {
resultDiv.innerHTML = "Please enter positive values for income, rate, and term, and non-negative for debt and down payment.";
return;
}
// — Affordability Calculations —
// 1. Calculate Gross Monthly Income
var grossMonthlyIncome = annualIncome / 12;
// 2. Calculate Maximum PITI (Principal, Interest, Taxes, Insurance) based on 28% rule
var maxPITI = grossMonthlyIncome * 0.28;
// 3. Calculate Maximum Total Debt based on 36% rule
var maxTotalDebt = grossMonthlyIncome * 0.36;
// 4. Calculate Maximum Allowable Mortgage Payment (PITI excluding taxes/insurance for now, to isolate principal+interest)
// For simplicity in this calculator, we will assume taxes and insurance are a portion of the maxPITI.
// A more complex calculator would have inputs for taxes and insurance.
// We'll use maxPITI as the target for total housing costs.
// To find the max monthly payment (principal + interest), we subtract an estimated amount for taxes/insurance.
// A common estimate is 1-1.5% of home value annually for taxes/insurance.
// Since we don't know the home value yet, we'll approximate based on max PITI.
// Let's assume Taxes & Insurance are roughly 20-30% of PITI for estimation.
// This is a simplification.
var estimatedMonthlyTaxesAndInsurance = maxPITI * 0.25; // Example estimate
var maxMonthlyPrincipalInterest = maxPITI – estimatedMonthlyTaxesAndInsurance;
if (maxMonthlyPrincipalInterest <= 0) {
resultDiv.innerHTML = "Income too low to qualify based on the 28% rule.";
return;
}
// 5. Calculate Maximum allowed monthly debt payments including PITI
var maxAllowedMonthlyObligations = grossMonthlyIncome * 0.36;
var maxAllowedPrincipalInterestFromDebtRule = maxAllowedMonthlyObligations – monthlyDebt;
if (maxAllowedPrincipalInterestFromDebtRule 0) {
// Mortgage payment formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// Rearranged to solve for P (Principal Loan Amount):
// P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
maxLoanAmount = actualMaxMonthlyPrincipalInterest * (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments));
} else {
// If interest rate is 0% (highly unlikely for mortgages)
maxLoanAmount = actualMaxMonthlyPrincipalInterest * numberOfPayments;
}
// 7. Calculate Maximum Affordable Home Price
var maxHomePrice = maxLoanAmount + downPayment;
// — Display Results —
var outputHTML = "
Estimated Affordability:
";
outputHTML += "Gross Monthly Income: $" + grossMonthlyIncome.toFixed(2) + "";
outputHTML += "Maximum PITI (Housing Cost): $" + maxPITI.toFixed(2) + " (28% of Gross Monthly Income)";
outputHTML += "Maximum Total Debt Obligations: $" + maxTotalDebt.toFixed(2) + " (36% of Gross Monthly Income)";
outputHTML += "Estimated Max Monthly Principal & Interest: $" + actualMaxMonthlyPrincipalInterest.toFixed(2) + "";
outputHTML += "Estimated Maximum Loan Amount: $" + maxLoanAmount.toFixed(2) + "";
outputHTML += "Estimated Maximum Affordable Home Price: $" + maxHomePrice.toFixed(2) + "";
outputHTML += "(Note: This is an estimate. Actual loan amount may vary. Assumes property taxes and insurance are roughly 25% of max PITI.)";
resultDiv.innerHTML = outputHTML;
}