House Affordability Calculator: Find Out How Much Home You Can Afford

How to Calculate House Affordability

To determine how much house you can afford, you need to understand several financial factors that lenders use to evaluate your mortgage eligibility. Our House Affordability Calculator simplifies this process by automatically estimating your affordable home price based on your income, debts, and down payment. Here’s how the calculation works, step-by-step:

Step 1: Determine Your Annual Income

Your annual income is the total amount of money you earn before taxes and deductions. This includes salary, bonuses, commissions, or any other consistent income sources. If you’re buying a home with a co-borrower, combine both of your incomes to calculate your total annual household income.

Step 2: Calculate Your Monthly Debts

List out all of your recurring monthly debt payments such as car loans, student loans, credit card minimums, or personal loans. These amounts are essential to finding your debt-to-income ratio (DTI). For instance, if you pay $300 toward your car loan and $100 in credit card payments, your total monthly debts are $400.

Step 3: Estimate Your Down Payment

The down payment is the amount you plan to pay upfront toward your home purchase. A larger down payment reduces your loan amount and your monthly mortgage payment. While some loans allow as little as 3% down, a 20% down payment helps you avoid Private Mortgage Insurance (PMI) and increases your affordability. For example, a 20% down payment on a $300,000 home is $60,000.

Step 4: Understand Your Debt-to-Income Ratio (DTI)

The DTI ratio shows how much of your monthly income goes toward debt. Lenders typically prefer a DTI of 36% or less. The formula is:

DTI = (Total Monthly Debt ÷ Gross Monthly Income) × 100

For example, if you earn $6,000 per month and have $1,800 in total debts, your DTI is 30%.

Step 5: Estimate Your Monthly Mortgage Payment

Your mortgage payment includes the loan’s principal, interest, property taxes, and homeowner’s insurance (often called PITI). Some loans may also include HOA fees and PMI if your down payment is less than 20%.

• Principal & Interest: Based on your loan amount, interest rate, and term length (e.g., 30 years).
• Property Taxes: Usually range from 0.5% to 2% of your home’s value annually.
• Homeowner’s Insurance: Typically costs around $35 per month per $100,000 of the home value.
• HOA Dues: May apply to condos or certain communities.

Step 6: Factor in Interest Rate and Loan Term

The interest rate determines how much you’ll pay to borrow money over the life of the loan. A lower rate means higher affordability. Most homebuyers choose a 30-year fixed-rate mortgage, but shorter terms (like 15 years) have higher monthly payments and lower total interest costs.

Step 7: Calculate the Maximum Affordable Home Price

Once you know your income, debts, and down payment, the calculator estimates the maximum house price you can afford. It ensures your monthly payment (including taxes and insurance) stays within a safe percentage of your income—usually around 28% to 31%.

Example Calculation

Let’s say you earn $80,000 per year ($6,667 per month) and have $500 in monthly debts. You plan a 10% down payment and want to stay under a 30% DTI.

• Gross monthly income: $6,667
• Monthly debt payments: $500
• Target DTI: 30%

30% of $6,667 = $2,000 maximum housing payment. After accounting for taxes and insurance, your affordable home price is approximately $300,000–$320,000, depending on your interest rate and down payment.

Step 8: Review and Adjust

Experiment with different down payment amounts, interest rates, or loan terms in the calculator to see how your affordability changes. This helps you set realistic home-buying goals before applying for a mortgage.

Summary

The House Affordability Calculator simplifies the process of estimating how much home you can afford by combining your income, debts, and loan details. By understanding each factor, you can confidently plan your budget and make informed home-buying decisions.