Use our comprehensive **Mortgage Affordability Calculator** to estimate the maximum home price you can comfortably afford based on your current income, debts, and planned down payment. Understanding your borrowing power is the critical first step in homeownership.
Mortgage Affordability Calculator
Mortgage Affordability Calculation Formula
Step 1: Calculate Maximum Monthly Principal & Interest Payment (PMT)
Max PMT = (Gross Monthly Income * 0.28) – Monthly Debts
Step 2: Calculate Maximum Loan Principal (P) using Present Value Formula
$$P = \text{PMT} \cdot \left[ \frac{1 – (1 + i)^{-n}}{i} \right]$$
Where:
- \(i\) = Monthly Interest Rate (\(\text{Annual Rate} / 12 / 100\))
- \(n\) = Total number of payments (\(\text{Term in Years} \times 12\))
Step 3: Calculate Maximum Affordable Home Price
Max Home Price = Max Loan Principal + Down Payment
Formula Source: Consumer Financial Protection Bureau (CFPB) – DTI and Mortgage LendingVariables Explained (Calculator Inputs)
- Gross Monthly Income (GMI): Your total earnings before taxes and deductions. This is the primary driver of your affordability.
- Total Monthly Debts (TMD): Recurring minimum monthly payments for non-mortgage debts (e.g., auto loans, student loans, credit card minimums).
- Annual Interest Rate (%): The expected annual rate for your mortgage. A higher rate significantly reduces your borrowing power.
- Loan Term (Years): The length of the mortgage, typically 15 or 30 years. Longer terms usually mean lower monthly payments but higher total interest paid.
- Down Payment ($): The initial sum you contribute towards the home purchase. This directly adds to the maximum affordable price.
Related Calculators
Explore these tools for a complete financial picture:
- Mortgage Amortization Schedule Calculator
- Home Refinance Breakeven Calculator
- Property Tax and Insurance Estimator
- Rent vs. Buy Analysis Tool
What is Mortgage Affordability?
Mortgage affordability is a financial assessment of how much house you can realistically purchase without becoming “house poor.” Lenders primarily rely on the Debt-to-Income (DTI) ratio, specifically the **28/36 Rule**. This rule suggests your housing payment (PITI: Principal, Interest, Taxes, Insurance) should not exceed 28% of your Gross Monthly Income (GMI), and your total monthly debt payments (including PITI) should not exceed 36% of your GMI.
Our calculator focuses on determining the maximum loan principal you qualify for based on your current non-mortgage debts and income, targeting an optimal DTI. The maximum Monthly Principal and Interest (P&I) payment is calculated first, and then this payment is used in the Present Value formula to back-calculate the maximum loan amount you can support over the specified term.
It’s important to note that this calculator provides an estimate. Actual affordability can be affected by property-specific costs (HOA fees, taxes, insurance) and your lender’s specific underwriting guidelines. Always obtain a pre-approval from a bank for a precise figure.
How to Calculate Mortgage Affordability (Example)
- Define Inputs: Assume GMI is $6,000, TMD is $500, Rate is 6.5%, Term is 30 years, and Down Payment is $50,000.
- Calculate Max P&I Payment (Target DTI): Max PMT = ($6,000 * 0.28) – $500 = $1,680 – $500 = $1,180. (This is the maximum monthly mortgage payment the user can afford).
- Convert Rate and Term: Monthly Rate ($i$) = 6.5% / 12 / 100 = 0.0054167. Total Payments ($n$) = 30 years * 12 = 360.
- Calculate Max Loan Principal (P): Using the Present Value formula with PMT = $1,180, $i = 0.0054167$, and $n = 360$ yields a maximum principal of approximately $183,722.
- Determine Max Affordable Price: Max Home Price = $183,722 (Loan Principal) + $50,000 (Down Payment) = $233,722.
Frequently Asked Questions (FAQ)
The 28/36 rule is a conservative guideline used to assess risk. The 28% limit (front-end ratio) ensures the mortgage payment itself is manageable, while the 36% limit (back-end ratio) ensures all debts combined do not overburden the borrower, reducing the chance of default.
Does this calculator include property taxes and insurance?No. This calculator is designed to find the maximum loan principal based on your *current* financial profile and standard P&I limits. Property taxes and insurance (PITI) are highly localized and variable. You should subtract estimated monthly P&I from your maximum PITI affordability to determine the true P&I capacity.
How does a higher down payment affect affordability?A higher down payment directly increases the total purchase price you can afford without increasing your loan amount or monthly payment. It also makes you a less risky borrower, often qualifying you for better interest rates.
What is the difference between affordability and pre-approval?Affordability is a personal estimate based on general industry guidelines. Pre-approval is a formal commitment from a lender, based on verified documents, providing a legally supported maximum loan amount you can borrow.