House Mortgage Affordability Calculator

Mortgage Affordability Formula:

\[ \text{Affordable Price} = \left(\text{Monthly Income} \times 0.36 - \text{Other Debt}\right) \times \frac{(1 + r)^n - 1}{r \times (1 + r)^n} \times 12 - \text{Down Payment} \]

Monthly Income:

currency

Other Monthly Debt Payments:

currency/month

Annual Interest Rate:

Loan Term:

years

Down Payment:

currency

Affordable House Price:

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1. What is Mortgage Affordability?

The mortgage affordability calculator determines how much house you can afford based on your income, existing debts, interest rate, loan term, and down payment. It follows the 36% debt-to-income ratio guideline used by many lenders.

2. How Does the Calculator Work?

The calculator uses the mortgage affordability formula:

\[ \text{Affordable Price} = \left(\text{Monthly Income} \times 0.36 - \text{Other Debt}\right) \times \frac{(1 + r)^n - 1}{r \times (1 + r)^n} \times 12 - \text{Down Payment} \]

Where:

\( \text{Monthly Income} \) — Your gross monthly income
\( \text{Other Debt} \) — Monthly payments for other debts
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Total number of monthly payments (years × 12)
\( \text{Down Payment} \) — Amount you can put down upfront

Explanation: The formula calculates the maximum mortgage payment you can afford (36% of income minus other debts), then determines the loan amount that payment would support, and finally adds your down payment.

3. Importance of Affordability Calculation

Details: Calculating affordability helps prevent overborrowing, ensures comfortable monthly payments, and gives you realistic expectations when house hunting.

4. Using the Calculator

Tips: Enter your gross (pre-tax) monthly income, all other monthly debt payments, expected interest rate, desired loan term, and available down payment. The calculator will show the maximum home price you can afford.

5. Frequently Asked Questions (FAQ)

Q1: Why use 36% debt-to-income ratio?
A: This is a common guideline lenders use, with 28% for housing and 8% for other debts. Some lenders may go higher but 36% is conservative.

Q2: Should I include taxes and insurance?
A: This calculator focuses on principal and interest. For a complete picture, add 1-2% of home value annually for taxes and insurance.

Q3: What if I have irregular income?
A: Use a conservative average or your base salary. Lenders typically look at 2+ years of income history.

Q4: How does down payment affect affordability?
A: Larger down payments increase affordability as they reduce the loan amount needed. Aim for at least 20% to avoid PMI.

Q5: Are there other costs to consider?
A: Yes, factor in closing costs (2-5% of home price), moving expenses, maintenance (1% of home value annually), and potential HOA fees.