1. What is the House Affordability Formula?

The house affordability formula estimates how much house you can afford based on your income, expenses, loan term, and current interest rates (represented by the rate factor). It provides a realistic assessment of your purchasing power in the current market.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

Where:

• \( Income \) — Your annual gross income in USD
• \( Expenses \) — Your annual expenses in USD
• \( Loan\ Term \) — Duration of the mortgage in years
• \( Rate\ Factor \) — Factor representing current interest rates (typically 0.7-0.85)

Explanation: The formula accounts for your disposable income (income minus expenses) and spreads it over the loan term while adjusting for current interest rates.

3. Importance of Affordability Calculation

Details: Calculating home affordability helps prevent over-borrowing, ensures sustainable mortgage payments, and helps buyers target appropriate price ranges.

4. Using the Calculator

Tips: Enter income and expenses in USD, loan term in years, and current rate factor (default is 0.85). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical rate factor?
A: Rate factors typically range from 0.7 to 0.85, with lower values representing higher interest rate environments.

Q2: Should I include taxes in expenses?
A: Yes, include all recurring annual expenses including taxes, insurance, and other debt payments.

Q3: What loan term should I use?
A: Standard mortgage terms are 15, 20, or 30 years. Use the term you're considering for your mortgage.

Q4: Does this include down payment?
A: No, this calculates total home price affordability. You'll need additional savings for down payment and closing costs.

Q5: How accurate is this estimate?
A: This provides a general guideline. Consult with a mortgage lender for precise pre-approval amounts.