Calculate House Affordability

Lenders use two key DTI ratios to assess mortgage eligibility. The front-end ratio compares housing costs alone to gross monthly income, with most lenders capping it at 28%. The back-end ratio includes all monthly debt obligations plus housing costs, typically capped at 36%. These thresholds ensure borrowers can comfortably manage their mortgage alongside other financial commitments. Some loan programs, like FHA, allow higher ratios, but the 28/36 guideline remains the industry standard for conventional loans.

The calculator uses the standard amortization formula to convert a maximum monthly payment into a loan amount. Given a monthly payment M, monthly interest rate r, and total number of payments n, the maximum loan principal is P = M x [(1+r)^n - 1] / [r x (1+r)^n]. Adding your down payment to the loan amount gives the maximum affordable home price. This same formula is used by banks and mortgage brokers to determine loan qualification amounts.

The sticker price of a home is only part of the total cost. Property taxes average around 1.2% of home value annually but vary widely by location. Homeowners insurance typically runs about 0.5% of the home value per year. Other costs not captured in this calculator include private mortgage insurance for down payments below 20%, HOA fees, maintenance reserves typically budgeted at 1% of home value annually, and closing costs ranging from 2% to 5% of the purchase price.

Several approaches can help you afford more home. Paying down existing debts reduces your back-end DTI and increases the maximum monthly payment lenders will approve. Saving a larger down payment directly increases your buying power dollar for dollar. Shopping for lower interest rates, even a 0.5% reduction, can add tens of thousands to your affordable price. Extending the loan term from 15 to 30 years lowers monthly payments, though it increases total interest paid over the life of the loan.