Home Loan Affordability Calculator Zillow

Affordability Formula:

\[ \text{Affordable price} = \left(\frac{\text{monthly income} \times 0.36 - \text{other debt}}{\frac{r \times (1 + r)^n}{(1 + r)^n - 1}}\right) \times 12 - \text{down payment} \]

Monthly Income:

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Other Monthly Debt:

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Annual Interest Rate:

Loan Term:

years

Down Payment:

currency

Affordable Home Price:

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1. What is the Home Loan Affordability Calculator?

The Home Loan Affordability Calculator estimates the maximum home price you can afford based on your income, debts, interest rate, loan term, and down payment. It follows the standard 36% debt-to-income ratio guideline used by most lenders.

2. How Does the Calculator Work?

The calculator uses the following formula:

\[ \text{Affordable price} = \left(\frac{\text{monthly income} \times 0.36 - \text{other debt}}{\frac{r \times (1 + r)^n}{(1 + r)^n - 1}}\right) \times 12 - \text{down payment} \]

Where:

\( \text{monthly income} \) — Your gross monthly income
\( \text{other debt} \) — Your monthly debt obligations
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Total number of payments (term in years × 12)
\( \text{down payment} \) — Amount you can put down upfront

Explanation: The calculator first determines the maximum monthly payment you can afford (36% of income minus other debts), then calculates the loan amount that payment would support, and finally adds your down payment to determine the total affordable home price.

3. Importance of Affordability Calculation

Details: Proper affordability calculation helps prevent over-borrowing, ensures comfortable mortgage payments, and improves loan approval chances by meeting lender debt-to-income ratio requirements.

4. Using the Calculator

Tips: Enter your gross monthly income (before taxes), all monthly debt payments (credit cards, car loans, etc.), current mortgage rates, desired loan term, and available down payment. The calculator will show the maximum home price you can comfortably afford.

5. Frequently Asked Questions (FAQ)

Q1: Why the 36% debt-to-income ratio?
A: Most lenders use 36% as the upper limit for housing expenses plus other debts to ensure borrowers can comfortably make payments.

Q2: Should I borrow the maximum amount calculated?
A: Not necessarily. Consider your lifestyle, savings goals, and potential future expenses before committing to the maximum amount.

Q3: What's not included in this calculation?
A: Property taxes, insurance, HOA fees, and maintenance costs aren't included. These should be considered separately.

Q4: How does down payment affect affordability?
A: Larger down payments increase your affordable price by reducing the loan amount needed and potentially eliminating PMI.

Q5: What if I have variable income?
A: Use a conservative income estimate. Lenders typically average variable income over 2+ years.