1. What is the Home Loan Affordability Calculator?

This calculator helps you determine how much home you can afford based on your income, debt-to-income ratio, and typical mortgage payment rates. It's a crucial first step in the home buying process.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

Where:

• Income — Your annual gross income in dollars
• DTI Ratio — Debt-to-Income ratio (typically 0.36 or 36%)
• Monthly Payment Rate — Monthly payment per dollar of loan (e.g., 0.006 for $6 per $1000)

Explanation: The formula calculates the maximum loan amount you can afford while maintaining a healthy debt-to-income ratio.

3. Understanding the Components

Debt-to-Income Ratio (DTI): This is the percentage of your gross monthly income that goes toward paying debts. Lenders typically prefer a DTI of 36% or less.

Monthly Payment Rate: This represents how much you'll pay monthly per dollar of loan amount, which depends on interest rate and loan term.

4. Using the Calculator

Tips:

• Use your gross annual income (before taxes)
• Standard DTI ratio is 0.36 (36%)
• Typical monthly payment rate is about 0.006 ($6 per $1000 loan)
• For a more accurate estimate, use actual mortgage rates and terms

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio?
A: Most lenders prefer 36% or lower, though some may accept up to 43% for qualified buyers.

Q2: How does interest rate affect affordability?
A: Higher rates increase the monthly payment rate, reducing the loan amount you can afford.

Q3: Should I include bonuses in my income?
A: Only if they're consistent and likely to continue. Lenders typically want 2+ years of bonus history.

Q4: What other costs should I consider?
A: Remember to account for property taxes, insurance, maintenance, and potential HOA fees.

Q5: How accurate is this estimate?
A: This provides a general guideline. For precise numbers, consult with a mortgage lender.