Use this calculator to estimate the maximum home price and loan amount you can comfortably afford based on your income, current debts, and prevailing mortgage standards (like the 28/36% rules).
What Mortgage Can I Afford Calculator
Maximum Affordable Home Price
What Mortgage Can I Afford Calculator Formula
The maximum loan amount (L) is calculated by first determining your maximum affordable monthly Principal & Interest (P&I) payment, derived from the stricter of the Front-End (PITI) and Back-End (DTI) ratios.
1. Max Monthly PITI: PITI_max = MIN( (Income / 12) * 0.28, ( (Income / 12) * 0.36 ) - MonthlyDebt )
2. Max Monthly P&I: PI_max = PITI_max - MonthlyTaxesAndInsurance
3. Max Loan Amount (L_max):
Let r = Annual Rate / 1200
Let n = Loan Term in Years * 12
L_max = PI_max * [ ((1 + r)ⁿ - 1) / (r * (1 + r)ⁿ) ]
4. Max Home Price (H_max):
H_max = L_max / (1 - Down Payment %)
Formula Sources: CFPB: Understanding DTI Ratio, Investopedia: DTI & PITI Ratios
Variables
Understanding the variables is key to getting an accurate affordability estimate:
- Annual Household Income: The combined gross income before taxes of all borrowers.
- Total Monthly Debt Payments (Excl. Housing): Sum of minimum required monthly payments for all non-housing debt (e.g., student loans, credit cards, auto loans).
- Down Payment Percentage: The percentage of the home price you plan to pay upfront.
- Annual Interest Rate: The fixed annual rate for the mortgage.
- Loan Term (Years): Typically 15 or 30 years.
- Estimated Monthly Property Tax & Insurance (T&I): An estimate of the non-P&I portion of your monthly payment, which significantly impacts affordability.
Related Calculators
Explore these related financial tools:
- Monthly Mortgage Payment Calculator
- Debt-to-Income (DTI) Ratio Calculator
- Home Equity Line of Credit (HELOC) Affordability
- Rent vs. Buy Analysis Tool
What is “What Mortgage Can I Afford”?
Mortgage affordability is the maximum loan amount and corresponding home price a lender is willing to approve and, more importantly, a borrower can comfortably manage. Lenders use two primary ratios to determine this: the Front-End Ratio (PITI to Income) and the Back-End Ratio (Total Debt to Income, or DTI). Conventional lending often caps the Front-End ratio at 28% and the Back-End DTI at 36%, meaning your total housing cost (PITI) should not exceed 28% of your gross monthly income, and your total debt (including PITI) should not exceed 36%.
This calculator determines the maximum PITI payment allowed by both rules and uses the *stricter* limit to calculate the maximum loan amount. The maximum affordable home price is then derived by adding your down payment to that loan amount.
How to Calculate Maximum Mortgage Affordability (Example)
Let’s use an example with $100,000 Annual Income, $400 Monthly Debt, 20% Down, 7.0% Rate, 30 Year Term, and $250 Monthly T&I:
- Calculate Gross Monthly Income: $100,000 / 12 = $8,333.33
- Determine PITI Limit 1 (28% Rule): $8,333.33 x 0.28 = $2,333.33
- Determine PITI Limit 2 (36% Rule): ($8,333.33 x 0.36) – $400 Debt = $3,000.00 – $400 = $2,600.00
- Find Strictest Limit: The lower of the two is $2,333.33. This is the Max Monthly PITI.
- Calculate Max P&I: $2,333.33 PITI – $250 T&I = $2,083.33 Max Monthly P&I.
- Solve for Loan Amount: Using the amortization formula with a 7.0% rate over 30 years, a $2,083.33 P&I payment supports a maximum loan of approximately $313,037.
- Calculate Max Home Price: $313,037 Loan / (1 – 0.20 DP) = $391,296 Max Affordable Home Price.
Frequently Asked Questions (FAQ)
- Q: Why does the calculator use 28% and 36% ratios?
- A: These are standard guidelines for conventional conforming loans. The 28% ratio (Front-End) is the maximum PITI, and the 36% ratio (Back-End, or DTI) is the maximum total debt (PITI + existing non-housing debt).
- Q: What is included in “Total Monthly Debt Payments”?
- A: This includes minimum monthly payments for revolving debt (credit cards), installment loans (auto, student), and any required monthly alimony or child support payments. It excludes everyday living expenses.
- Q: What is PITI?
- A: PITI stands for Principal, Interest, Taxes, and Insurance. It represents the four components of your total monthly housing cost. The calculator requires an estimate for T&I because these costs vary significantly by location.
- Q: Can I afford more or less than this result?
- A: This is an estimate based on standard rules. A lender may approve you for more or less based on credit score, specific loan programs (like FHA/VA), or cash reserves. Always consult a financial advisor for final figures.