Buying a home is one of the biggest financial decisions you'll make. Our Home Loan Affordability Calculator helps you determine a realistic budget for your new home. By analyzing your income, existing debts, and down payment, we estimate the maximum home price you can comfortably afford without stretching your finances too thin.
How We Calculate Affordability
We use the standard 28/36 rule used by most financial advisors and lenders:
- Front-End Ratio (28%): Your monthly housing costs (mortgage principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.
- Back-End Ratio (36%): Your total monthly debt payments (housing costs + credit cards + car loans + student loans, etc.) should not exceed 36% of your gross monthly income.
The calculator determines the maximum monthly payment allowed under both rules and uses the lower of the two to ensure you stay within a safe budget.
Key Terms
- Gross Monthly Income: Your total income before taxes and deductions.
- Debt-to-Income Ratio (DTI): The percentage of your gross monthly income that goes towards paying debts.
- Down Payment: The initial upfront payment you make for the house. A larger down payment reduces your loan amount and monthly payments.
- PITI: Principal, Interest, Taxes, and Insurance - the four components of a monthly mortgage payment.