function calculateAffordability() {
var monthlyIncome = parseFloat(document.getElementById("monthlyIncome").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 resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(monthlyIncome) || isNaN(existingDebts) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
// Rule of thumb: Front-end ratio (housing costs) should be max 28% of gross monthly income
// Rule of thumb: Back-end ratio (all debt) should be max 36% of gross monthly income
var maxHousingPayment = monthlyIncome * 0.28;
var maxTotalDebtPayment = monthlyIncome * 0.36;
var maxAllowedMortgagePayment = maxTotalDebtPayment – existingDebts;
// Determine the most limiting factor for the monthly mortgage payment
var affordableMonthlyPayment = Math.min(maxHousingPayment, maxAllowedMortgagePayment);
if (affordableMonthlyPayment 0) {
maxLoanAmount = affordableMonthlyPayment * (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate;
} else {
// Handle 0% interest rate scenario (less common but possible)
maxLoanAmount = affordableMonthlyPayment * numberOfPayments;
}
// The maximum home price you can afford is the maximum loan amount plus your down payment
var maxHomePrice = maxLoanAmount + downPayment;
resultDiv.innerHTML = "Estimated Maximum Affordable Monthly Mortgage Payment (Principal & Interest): $" + affordableMonthlyPayment.toFixed(2) + "" +
"Estimated Maximum Loan Amount: $" + maxLoanAmount.toFixed(2) + "" +
"Estimated Maximum Home Purchase Price: $" + maxHomePrice.toFixed(2) + "";
}
Understanding Mortgage Affordability
Determining how much house you can afford is one of the most crucial steps in the home-buying process. Lenders use various metrics to assess your ability to repay a mortgage loan. This calculator helps you estimate your potential mortgage affordability by considering your income, existing debts, down payment, and the terms of the potential loan.
Key Factors in Mortgage Affordability:
Monthly Income: This is your gross income before taxes. Lenders primarily look at this to gauge your repayment capacity.
Existing Debt Payments: This includes all your recurring monthly debt obligations, such as car loans, student loans, personal loans, and minimum credit card payments. Lenders subtract these from your income to determine how much is left for a mortgage.
Down Payment: The upfront cash you pay towards the purchase price. A larger down payment reduces the amount you need to borrow, lowering your monthly payments and potentially improving your loan terms.
Interest Rate: The percentage charged by the lender on the loan amount. Even small differences in interest rates can significantly impact your monthly payments and the total interest paid over the life of the loan.
Loan Term: The duration of the mortgage, typically 15 or 30 years. Longer terms usually result in lower monthly payments but higher total interest paid. Shorter terms mean higher monthly payments but less interest overall.
How the Affordability Calculation Works (Simplified):
Lenders generally use two main ratios to determine mortgage affordability:
Front-End Ratio (Housing Ratio): This ratio compares your potential total monthly housing expenses (principal, interest, taxes, and insurance – PITI) to your gross monthly income. A common guideline is that PITI should not exceed 28% of your gross monthly income.
Back-End Ratio (Debt-to-Income Ratio): This ratio compares your total monthly debt obligations (including the potential mortgage payment and all other debts) to your gross monthly income. A typical guideline is that total debt should not exceed 36% of your gross monthly income.
This calculator uses these principles to estimate the maximum monthly mortgage payment you might qualify for, and subsequently, the maximum loan amount and home price you can afford, given your inputs. Remember that these are estimates, and your actual approved loan amount may vary based on the lender's specific underwriting criteria, credit score, and other financial factors. It is always recommended to speak with a mortgage professional for a precise pre-approval.