Affordability Formula:
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The House Price Affordability Calculator determines the maximum home price you can afford based on your income, debt-to-income ratio, loan terms, and down payment. It uses the standard 28% rule for housing expenses.
The calculator uses the following formula:
Where:
Explanation: The formula calculates the present value of an annuity (your monthly payments) and adds your down payment to determine the maximum affordable price.
Details: Calculating affordability helps prevent overextension, ensures comfortable mortgage payments, and helps with budgeting for homeownership costs.
Tips: Enter your gross monthly income before taxes, the monthly interest rate (divide APR by 12), loan term in months, and any down payment amount. All values must be positive numbers.
Q1: Why use 28% of income?
A: The 28% rule is a common guideline suggesting housing costs shouldn't exceed 28% of gross income to maintain financial stability.
Q2: Should I include taxes and insurance?
A: This calculator focuses on principal and interest. For a complete picture, add ~1-3% of home value annually for taxes and insurance.
Q3: What if I have other debts?
A: Lenders typically use 36% total debt-to-income ratio. Reduce the 28% factor if you have significant other debts.
Q4: How does down payment affect affordability?
A: Larger down payments increase affordability by reducing loan amount and potentially eliminating PMI.
Q5: What about property taxes and insurance?
A: These are not included in this basic calculation. For more accuracy, use calculators that incorporate these factors.