Determining how much mortgage you can afford is a crucial step in the home-buying process. It's not just about what a lender might approve you for; it's about finding a payment that fits comfortably within your budget. Several factors contribute to this calculation, including your income, existing debts, the size of your down payment, current interest rates, and the loan term.
Key Factors Explained:
Annual Income: This is your gross income before taxes. Lenders often use a debt-to-income (DTI) ratio, where your total monthly debt payments (including the potential mortgage) should not exceed a certain percentage of your gross monthly income. A common guideline is that your total housing costs (principal, interest, taxes, insurance – PITI) should be no more than 28% of your gross monthly income, and all your debts combined should be no more than 36%.
Monthly Debt Payments: This includes all your recurring monthly financial obligations such as car loans, student loans, credit card minimum payments, and any other installment loans. These significantly impact your DTI ratio.
Down Payment: The larger your down payment, the less you need to borrow, which directly reduces your monthly mortgage payment and the total interest paid over the life of the loan. A larger down payment can also help you avoid private mortgage insurance (PMI).
Interest Rate: The annual interest rate on the mortgage is a major component of your monthly payment. Even small differences in the interest rate can lead to substantial changes in your monthly costs and the total interest paid over time.
Loan Term: This is the duration over which you will repay the mortgage, typically 15 or 30 years. A shorter loan term usually results in higher monthly payments but less total interest paid. A longer term means lower monthly payments but more interest over the life of the loan.
How the Calculator Works:
Our Mortgage Affordability Calculator uses these inputs to estimate your maximum affordable mortgage. It first calculates your maximum recommended monthly housing payment based on common DTI guidelines. Then, it works backward from that maximum payment, considering the interest rate and loan term, to estimate the principal loan amount you could afford. Finally, it subtracts your down payment to give you an idea of the maximum home price you might be able to afford.
Disclaimer: This calculator provides an estimate and should not be considered financial advice. Consult with a mortgage professional for personalized guidance.
function calculateMortgageAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var existingDebts = parseFloat(document.getElementById("existingDebts").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultElement = document.getElementById("result");
resultElement.innerHTML = ""; // Clear previous results
if (isNaN(annualIncome) || isNaN(existingDebts) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultElement.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (annualIncome <= 0 || existingDebts < 0 || downPayment < 0 || interestRate <= 0 || loanTerm <= 0) {
resultElement.innerHTML = "Please enter realistic positive values for income, interest rate, and loan term. Debt and down payment can be zero.";
return;
}
// — Calculations —
// 1. Calculate maximum recommended monthly housing payment (PITI)
// Using the 28% rule for housing costs
var grossMonthlyIncome = annualIncome / 12;
var maxMonthlyHousingPayment = grossMonthlyIncome * 0.28;
// 2. Calculate available funds for mortgage after existing debts
// Using the 36% rule for total debt-to-income ratio
var maxTotalMonthlyDebt = grossMonthlyIncome * 0.36;
var availableForMortgage = maxTotalMonthlyDebt – existingDebts;
// The actual affordable monthly payment is the lesser of the two guidelines
var affordableMonthlyPayment = Math.min(maxMonthlyHousingPayment, availableForMortgage);
// Ensure affordable monthly payment is not negative
if (affordableMonthlyPayment 0) {
// Formula for loan amount: M = P [ (1+i)^n – 1 ] / [ (1+i)^n ]
// Rearranging for P (Principal): P = M [ (1+i)^n ] / [ (1+i)^n – 1]
maxLoanAmount = affordableMonthlyPayment * (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments));
} else {
// If interest rate is 0, loan amount is simply monthly payment * number of payments
maxLoanAmount = affordableMonthlyPayment * numberOfPayments;
}
// 4. Calculate maximum affordable home price
var maxHomePrice = maxLoanAmount + downPayment;
// — Display Results —
resultElement.innerHTML += "