Home Affordability Calculator
Estimate the maximum home price you can afford based on your income and debts.
Recommended Home Purchase Price:
$0
Estimated Loan Amount:
$0
Maximum Monthly P&I Payment:
$0
Monthly Property Tax/Insurance (Est.):
$0
How Much House Can I Afford?
Determining your home affordability is the first and most crucial step in the home-buying process. While lenders use complex algorithms, the primary metric they look at is your Debt-to-Income (DTI) ratio. This calculator helps you estimate your maximum purchase price using industry-standard financial guidelines.
The 28/36 Rule Explained
Financial experts and many mortgage lenders follow the "28/36 Rule" to determine creditworthiness:
- 28% Limit: Your mortgage payment (including taxes and insurance) should not exceed 28% of your gross monthly income.
- 36% Limit: Your total debt payments (mortgage plus car loans, student loans, and credit cards) should not exceed 36% of your gross monthly income.
Our calculator defaults to a 36% DTI limit, which is a common benchmark for conventional loans, though some programs like FHA may allow up to 43% or higher depending on credit scores.
Key Factors Affecting Your Budget
- Gross Annual Income: This is your total income before taxes. Lenders use this because tax liabilities vary, but it's important for you to remember your "take-home" pay will be lower.
- Down Payment: The more you put down, the lower your monthly loan payment will be. A 20% down payment also helps you avoid Private Mortgage Insurance (PMI).
- Interest Rates: Even a 1% difference in interest rates can change your purchasing power by tens of thousands of dollars.
- Existing Debts: High monthly payments for vehicles or student loans directly reduce the amount a bank will lend you for a mortgage.
Realistic Example
Consider a couple earning a combined $100,000 per year ($8,333/month). If they have $500 in monthly car payments and $300 in student loans ($800 total debt), and a lender uses a 36% DTI ratio:
- Max Total Monthly Debt Allowed: $8,333 * 0.36 = $3,000
- Available for Mortgage: $3,000 – $800 = $2,200
With an estimated $400 reserved for taxes and insurance, they have $1,800 for Principal and Interest. At a 6.5% interest rate, this supports a loan of approximately $284,000. If they have $60,000 for a down payment, their affordable home price is roughly $344,000.