House Affordability Calculator Real Estate

Affordability Formula:

\[ \text{Max Price} = \frac{(\text{Monthly Income} \times \text{DTI Ratio} - \text{Monthly Debts}) \times ((1 + r)^n - 1)}{r (1 + r)^n} \]

Monthly Income (USD):

USD

DTI Ratio (decimal):

(0-1)

Monthly Debts (USD):

USD

Monthly Interest Rate (decimal):

(0-1)

Loan Term (months):

months

Maximum Affordable Price:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the House Affordability Calculator?

The House Affordability Calculator estimates the maximum home price you can afford based on your income, debts, loan terms, and debt-to-income ratio. It helps potential homebuyers understand their purchasing power in the real estate market.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

\[ \text{Max Price} = \frac{(\text{Monthly Income} \times \text{DTI Ratio} - \text{Monthly Debts}) \times ((1 + r)^n - 1)}{r (1 + r)^n} \]

Where:

\( \text{Monthly Income} \) — Your gross monthly income
\( \text{DTI Ratio} \) — Debt-to-income ratio (typically 0.36-0.43)
\( \text{Monthly Debts} \) — Existing monthly debt payments
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Loan term in months

Explanation: The formula calculates the present value of all future mortgage payments you can afford based on your financial situation.

3. Importance of Affordability Calculation

Details: Calculating affordability helps prevent overextension, ensures comfortable mortgage payments, and helps buyers focus on properties within their budget.

4. Using the Calculator

Tips: Enter your gross monthly income before taxes, your existing monthly debt payments (credit cards, car loans, etc.), the DTI ratio your lender uses (typically 0.36), the monthly interest rate (annual rate ÷ 12), and the loan term in months (360 for 30-year mortgage).

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Most lenders prefer 0.36 or lower, though some may accept up to 0.43. Lower ratios mean more financial flexibility.

Q2: Should I include taxes and insurance?
A: This calculator focuses on principal and interest. For complete affordability, consider adding 1-1.5% of home value annually for taxes/insurance.

Q3: How accurate is this calculator?
A: It provides a good estimate but actual approval amounts may vary based on credit score, down payment, and lender policies.

Q4: What's not included in this calculation?
A: Down payment, closing costs, HOA fees, and variable expenses like maintenance and utilities aren't factored in.

Q5: Should I max out my affordable amount?
A: It's often wise to buy below your max to maintain financial flexibility for other goals and unexpected expenses.