1. What is Home Affordability?

Home affordability refers to the maximum housing payment you can comfortably manage based on your income, existing debts, and debt-to-income (DTI) ratio. Lenders typically use DTI ratios to determine loan eligibility.

2. How Does the Calculator Work?

The calculator uses the home affordability formula:

Where:

• \( DTI\ Ratio \) — Debt-to-income ratio (typically 0.28-0.43)
• \( Income \) — Gross monthly income
• \( Debts \) — Monthly debt payments

Explanation: The formula calculates how much you can afford for housing after accounting for existing debts while maintaining a healthy DTI ratio.

3. Importance of DTI Ratio

Details: DTI ratio is a key metric lenders use to evaluate your ability to manage monthly payments. A lower DTI (≤36%) indicates better financial health and increases loan approval chances.

4. Using the Calculator

Tips: Enter your maximum acceptable DTI ratio (typically 0.36), gross monthly income, and total monthly debt payments. The result shows your affordable housing payment.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Most lenders prefer ≤36% (0.36), with ≤28% (0.28) for the housing portion. Some loans allow up to 43% (0.43).

Q2: Should I include taxes/insurance?
A: Yes, your total housing payment (PITI) should include principal, interest, taxes, and insurance.

Q3: What debts should I include?
A: Include all monthly debt obligations: credit cards, car payments, student loans, personal loans, etc.

Q4: How does credit score affect affordability?
A: Higher scores may qualify you for better rates, effectively increasing what you can afford.

Q5: Should I use gross or net income?
A: Lenders use gross income, but for personal budgeting, consider using net income for more accurate results.