Use the Mortgage Affordability Calculator to estimate your maximum affordable monthly housing payment (Principal, Interest, Taxes, and Insurance – PITI) based on standard Debt-to-Income (DTI) lending requirements.
Mortgage Affordability Calculator
Maximum Affordable Monthly Payment (PITI)
$0.00Mortgage Affordability Formula
The standard formula to determine the maximum monthly debt (including housing) is based on the Debt-to-Income (DTI) Ratio:
Max Total Monthly Debt = Annual Gross Income / 12 * (Target DTI Ratio / 100)
From this, we derive the maximum affordable housing payment (PITI):
Max Monthly PITI = Max Total Monthly Debt – Total Monthly Debt Payments
Formula Source: Consumer Financial Protection Bureau (CFPB) on DTI Ratio Additional Source: Investopedia on DTI RatioVariables Explained
- Annual Gross Income ($): Your total income before taxes and deductions, used to determine your borrowing capacity.
- Total Monthly Debt Payments ($): The sum of all recurring minimum monthly debt payments (e.g., student loans, car loans, credit card minimums). This excludes utilities and regular living expenses.
- Target DTI Ratio (%): The maximum percentage of your gross income that lenders allow to go toward debt, including the new mortgage payment. Most conventional loans cap DTI at 43%, but some programs allow up to 50%.
- Max Monthly PITI ($): The maximum amount a lender estimates you can afford for Principal, Interest, Property Taxes, and Homeowner’s Insurance.
Related Calculators
Explore these related tools to help plan your home purchase:
- Mortgage Pre-Approval Payment Estimator
- Housing Expense Ratio Calculator
- Debt Service Coverage Ratio Calculator
- Loan-to-Value (LTV) Ratio Calculator
What is Mortgage Affordability?
Mortgage affordability refers to the maximum loan size or monthly payment a borrower can reasonably manage without facing financial strain. Lenders primarily determine this using the Debt-to-Income (DTI) ratio, a key metric that compares your total monthly debt payments to your gross monthly income.
A low DTI signals to the lender that you have enough disposable income to comfortably cover the new mortgage payment, while a high DTI suggests a higher risk of default. The industry standard “front-end” ratio (housing payment only) and “back-end” ratio (housing plus all other debt) are vital for loan approval, making this calculation essential for any prospective homeowner.
How to Calculate Mortgage Affordability (Example)
- Determine Gross Monthly Income: A borrower earns an Annual Gross Income of $120,000. Divide by 12: $120,000 / 12 = $10,000.
- Calculate Max Total Monthly Debt: The lender sets a Target DTI Ratio of 40%. Multiply the monthly income by the DTI percentage: $10,000 * (40 / 100) = $4,000. This is the absolute maximum total debt payment allowed.
- Subtract Existing Debts: The borrower has existing Monthly Debt Payments totaling $800. Subtract this from the maximum debt: $4,000 – $800 = $3,200.
- Final Result: The Maximum Affordable Monthly Payment (PITI) is $3,200. This is the highest PITI a lender would likely approve.
Frequently Asked Questions (FAQ)
What is PITI?
PITI stands for Principal, Interest, Taxes, and Insurance. It is the total monthly housing cost that makes up your mortgage payment, and it’s the figure lenders use when calculating affordability.
What is a good Debt-to-Income (DTI) ratio?
Generally, a DTI of 36% or less is considered excellent, while a DTI between 37% and 43% is acceptable for most conventional loan programs. Anything over 43% typically requires specialized lending programs like FHA or VA loans.
Does this calculator find my maximum loan amount?
This calculator finds your maximum *monthly payment*. To find the loan amount, you would need to input this monthly payment into a separate mortgage payment calculator, along with current interest rates, term length, and estimated taxes/insurance.
Why is my gross income used instead of net income?
Lenders use gross income because it is the most consistent and verifiable figure used across the industry. While net income shows your actual take-home pay, gross income is the standard metric for assessing borrowing capacity based on DTI ratios.