Estimate your affordability based on your income, expenses, and savings. This calculator helps you understand your purchasing power for major items like homes, cars, or other significant investments.
Understanding What You Can Afford
The "What Can I Afford" calculator is a crucial tool for financial planning. It helps individuals determine how much they can realistically spend on a significant purchase, such as a home, a car, or even the scope of a business investment, by considering their financial inflows and outflows. This calculation goes beyond simple wishful thinking and grounds your aspirations in your actual financial capacity.
How the Calculator Works
This calculator uses a combination of your income, expenses, savings, and desired payment limits to estimate your affordability. The core logic involves:
Determining Available Funds for Payments: It first calculates how much money you have left over each month after covering your essential expenses. This is often referred to as your disposable income or surplus.
Assessing Savings: The amount of savings you have available is crucial for down payments, closing costs, or any initial capital required for a purchase.
Incorporating Loan Specifics (if applicable): For loans (like mortgages or car loans), the calculator considers the loan term (in years) and the estimated annual interest rate. It uses these to estimate the maximum loan amount you could service with your available monthly payment capacity.
The Math Behind Affordability
The calculator aims to determine two key figures:
Maximum Affordable Purchase Price (considering savings and recurring payments):
This is a simplified estimation. The primary driver here is your 'Desired Maximum Monthly Payment'. The calculator uses a standard loan amortization formula to work backward from this payment to find the principal amount you can borrow. This borrowed amount, plus your 'Savings Available for Down Payment/Initial Costs', gives a rough idea of the total purchase price you might afford.
Maximum Loan Amount (based on recurring payments):
This focuses purely on the loan aspect. The formula for the present value of an annuity (which is how loan amounts are calculated) is used:
P = M * [1 - (1 + r)^-n] / r
Where:
n = Total Number of Payments (Loan Term in Years * 12)
Important Considerations:
Pre-computation: The calculator first determines the monthly interest rate (`r`) and the total number of payments (`n`).
Valid Inputs: It checks if inputs are valid numbers to prevent errors.
Zero Interest Rate Handling: If the interest rate is 0, a simplified calculation is used for the loan amount (Total Payments * Monthly Payment).
Use Cases
This calculator is ideal for:
First-Time Homebuyers: To understand how much mortgage they can qualify for and afford monthly.
Car Shoppers: To gauge the price range of vehicles they can finance.
Individuals Planning Major Purchases: Whether it's a boat, RV, or significant home renovation requiring financing.
Budgeting and Financial Planning: To set realistic financial goals and understand the impact of potential large expenditures.
Remember, this calculator provides an estimation. Actual affordability can be influenced by lender-specific criteria, credit scores, additional fees, taxes, insurance, and personal financial priorities. It's always recommended to consult with a financial advisor or lender for a definitive assessment.
function calculateAffordability() {
var monthlyIncome = parseFloat(document.getElementById("monthlyIncome").value);
var estimatedMonthlyExpenses = parseFloat(document.getElementById("estimatedMonthlyExpenses").value);
var savingsAvailable = parseFloat(document.getElementById("savingsAvailable").value);
var desiredMonthlyPayment = parseFloat(document.getElementById("desiredMonthlyPayment").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var estimatedInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var resultDiv = document.getElementById("result");
resultDiv.style.display = 'block';
// Input validation
if (isNaN(monthlyIncome) || isNaN(estimatedMonthlyExpenses) || isNaN(savingsAvailable) || isNaN(desiredMonthlyPayment) || isNaN(loanTermYears) || isNaN(estimatedInterestRate)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = '#ffc107'; // Warning yellow
return;
}
// Ensure positive values where applicable
if (monthlyIncome < 0 || estimatedMonthlyExpenses < 0 || savingsAvailable < 0 || desiredMonthlyPayment < 0 || loanTermYears < 0 || estimatedInterestRate 0 && estimatedInterestRate > 0) {
var monthlyInterestRate = estimatedInterestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
// Calculate Max Loan Amount using the present value of an annuity formula
// P = M * [1 – (1 + r)^-n] / r
maxLoanAmount = desiredMonthlyPayment * (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate;
// Total affordability is the loan amount plus the available savings
totalPurchaseAffordability = maxLoanAmount + savingsAvailable;
// Format results
var formattedMaxLoan = maxLoanAmount.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var formattedTotalPurchase = totalPurchaseAffordability.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
resultDiv.innerHTML = `
Maximum Loan Amount: $${formattedMaxLoan}(Based on your desired monthly payment and loan terms)Estimated Total Purchase Affordability: $${formattedTotalPurchase}(Loan Amount + Your Savings)
`;
resultDiv.style.backgroundColor = 'var(–success-green)'; // Success green
} else if (loanTermYears > 0 && estimatedInterestRate === 0) {
// Handle zero interest rate case
var numberOfPayments = loanTermYears * 12;
maxLoanAmount = desiredMonthlyPayment * numberOfPayments;
totalPurchaseAffordability = maxLoanAmount + savingsAvailable;
var formattedMaxLoan = maxLoanAmount.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var formattedTotalPurchase = totalPurchaseAffordability.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
resultDiv.innerHTML = `
Maximum Loan Amount: $${formattedMaxLoan}(Based on your desired monthly payment and loan terms – 0% interest)Estimated Total Purchase Affordability: $${formattedTotalPurchase}(Loan Amount + Your Savings)
`;
resultDiv.style.backgroundColor = 'var(–success-green)'; // Success green
} else {
// If loan terms aren't applicable or not provided, affordability is simply savings + available funds over a reasonable period.
// This part is a simplification, as "affordability" without a loan context is broad.
// For simplicity, we'll show available funds and savings.
var totalCashAvailable = savingsAvailable + (availableForDebt * 12); // Example: savings + 1 year of surplus income
var formattedTotalCash = totalCashAvailable.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
resultDiv.innerHTML = `
Your Savings: $${savingsAvailable.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 })}(Available for initial costs/down payment)Estimated Disposable Income (After Expenses): $${availableForDebt.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 })} per monthEstimated Cash Available for Purchase (Savings + Approx. 1 Year Surplus): $${formattedTotalCash}(This is a simplified cash availability estimate)
`;
resultDiv.style.backgroundColor = 'var(–primary-blue)'; // Use primary blue for non-loan results
}
}