House Affordability Calculator
Use this calculator to estimate how much house you can afford based on your income, existing debts, and common lending guidelines. It helps you understand your maximum recommended monthly housing payment and an estimated home price.
Typically 28% (Front-End Ratio)
Typically 36% (Back-End Ratio)
Assumptions for Home Price Estimation:
To estimate a home price, the calculator uses the following common assumptions. Your actual affordability may vary based on specific loan terms and market conditions:
- Assumed Annual Mortgage Rate: 6.5%
- Assumed Mortgage Term: 30 years
- Assumed Initial Equity Contribution: 20% of home price
- Assumed Annual Property Tax Rate: 1.2% of home value
- Assumed Annual Home Insurance: $1,500
- Assumed Monthly HOA Fees: $50
Your Affordability Estimate:
'; outputHTML += 'Maximum Recommended Monthly Housing Payment: $' + maxAffordableMonthlyHousingPayment.toFixed(2) + ''; // — Home Price Estimation based on Assumptions — // Assumptions (hardcoded as per instructions, explained in HTML) var assumedMortgageRate = 0.065; // 6.5% var assumedMortgageTermYears = 30; var assumedInitialEquityPercent = 0.20; // 20% var assumedAnnualPropertyTaxRate = 0.012; // 1.2% var assumedAnnualHomeInsurance = 1500; // $1,500 var assumedMonthlyHOAFees = 50; // $50 if (maxAffordableMonthlyHousingPayment <= 0) { outputHTML += 'Based on your income and debts, a monthly housing payment is not currently affordable. Consider reducing debt or increasing income.'; resultDiv.innerHTML = outputHTML; return; } var monthlyInsurance = assumedAnnualHomeInsurance / 12; var monthlyHOA = assumedMonthlyHOAFees; // Remaining amount for Principal & Interest (P&I) and Property Tax (T) var P_I_T_target = maxAffordableMonthlyHousingPayment – monthlyInsurance – monthlyHOA; if (P_I_T_target <= 0) { outputHTML += 'Even with minimal P&I and property tax, your current budget cannot cover estimated insurance and HOA fees. Consider adjusting your expectations or financial situation.'; resultDiv.innerHTML = outputHTML; return; } var monthly_rate = assumedMortgageRate / 12; var num_payments = assumedMortgageTermYears * 12; // Calculate mortgage factor for P&I var mortgage_factor; if (monthly_rate === 0) { // Handle zero interest rate case (though unlikely for real mortgages) mortgage_factor = 1 / num_payments; } else { mortgage_factor = (monthly_rate * Math.pow(1 + monthly_rate, num_payments)) / (Math.pow(1 + monthly_rate, num_payments) – 1); } // Solve for Home Price (HP) // P_I_T_target = HP * (1 – assumedInitialEquityPercent) * mortgage_factor + HP * (assumedAnnualPropertyTaxRate / 12) // P_I_T_target = HP * [ (1 – assumedInitialEquityPercent) * mortgage_factor + (assumedAnnualPropertyTaxRate / 12) ] // HP = P_I_T_target / [ (1 – assumedInitialEquityPercent) * mortgage_factor + (assumedAnnualPropertyTaxRate / 12) ] var denominator = ((1 – assumedInitialEquityPercent) * mortgage_factor) + (assumedAnnualPropertyTaxRate / 12); var estimatedMaxHomePrice = P_I_T_target / denominator; outputHTML += 'Estimated Maximum Affordable Home Price: $' + estimatedMaxHomePrice.toFixed(2) + ''; outputHTML += 'This home price estimate is based on the assumptions listed below the calculator. Your actual affordability may vary.'; resultDiv.innerHTML = outputHTML; }Understanding Your House Affordability
Buying a home is one of the most significant financial decisions you'll make. Understanding what you can truly afford is crucial to ensure long-term financial stability and avoid being "house poor." This House Affordability Calculator helps you estimate your budget based on key financial metrics.
How Affordability is Determined: The 28/36 Rule
Lenders and financial advisors often use common guidelines, such as the "28/36 rule," to assess how much house you can afford. This rule involves two key ratios:
- Housing Expense Ratio (Front-End Ratio): This suggests that your total monthly housing costs (including principal, interest, property taxes, and homeowner's insurance – often abbreviated as PITI, plus any Homeowners Association (HOA) fees) should not exceed 28% of your gross monthly income.
- Total Debt Ratio (Back-End Ratio): This indicates that your total monthly debt payments – including your housing costs (PITI + HOA) AND all other recurring debts (car loans, student loans, credit card minimums, etc.) – should not exceed 36% of your gross monthly income.
Our calculator uses these ratios (which you can adjust) to determine your maximum recommended monthly housing payment. The lower of the two calculated amounts is generally considered your true maximum affordable payment.
Inputs Explained:
- Annual Household Income (before taxes): Your total gross income from all sources before any deductions. This is the foundation of your affordability.
- Total Monthly Non-Housing Debt Payments ($): The sum of all your regular monthly debt obligations, excluding any potential mortgage payment. This includes car payments, student loan payments, credit card minimums, and other personal loans.
- Maximum Housing Expense Ratio (%): Your desired or a typical front-end ratio (e.g., 28%). This sets a limit on how much of your income goes directly to housing.
- Maximum Total Debt Ratio (%): Your desired or a typical back-end ratio (e.g., 36%). This sets a limit on your total debt burden relative to your income.
Outputs:
The calculator provides two main outputs:
- Maximum Recommended Monthly Housing Payment: This is the highest monthly amount you should comfortably spend on housing, based on your income and debt ratios.
- Estimated Maximum Affordable Home Price: This figure translates your maximum monthly housing payment into an estimated home price. It's important to note that this estimation relies on several common assumptions (like mortgage rate, loan term, down payment percentage, property taxes, insurance, and HOA fees). These assumptions are listed below the calculator and can significantly impact the final home price.
Realistic Example:
Let's consider a household with:
- Annual Household Income: $90,000
- Total Monthly Non-Housing Debt: $400
- Maximum Housing Expense Ratio: 28%
- Maximum Total Debt Ratio: 36%
Calculation Steps:
- Monthly Gross Income: $90,000 / 12 = $7,500
- Max PITI from Housing Ratio (28%): $7,500 * 0.28 = $2,100
- Max PITI from Total Debt Ratio (36%): ($7,500 * 0.36) – $400 = $2,700 – $400 = $2,300
- Maximum Recommended Monthly Housing Payment: The lower of $2,100 and $2,300 is $2,100.
Using the calculator's default assumptions (6.5% mortgage rate, 30-year term, 20% initial equity, 1.2% property tax, $1500 annual insurance, $50 monthly HOA), a $2,100 monthly housing payment might translate to an estimated maximum affordable home price of approximately $275,000 – $295,000 (exact figure depends on precise calculation of PITI components). This shows how your income and debts directly influence the price range of homes you should consider.
Important Considerations:
- Assumptions Matter: The estimated home price is highly dependent on the assumed mortgage rate, property tax rate, insurance costs, and your initial equity contribution. These can vary significantly based on market conditions, location, and your personal financial situation.
- Beyond the Ratios: While these ratios are a good starting point, remember to factor in other homeownership costs like utilities, maintenance, potential repairs, and closing costs.
- Personal Comfort: The "maximum" affordable amount might not be your "comfortable" amount. Always leave room in your budget for savings, emergencies, and discretionary spending.
- Get Pre-Approved: This calculator provides an estimate. For a precise understanding of what you can borrow, it's essential to get pre-approved by a lender. They will consider your full financial profile.
Use this calculator as a valuable tool to guide your home-buying journey, helping you set realistic expectations and plan your finances effectively.