How Much Mortgage Afford Calculator

Mortgage Affordability Formula:

\[ \text{Affordable amount} = (\text{monthly income} \times 0.28) \times \frac{(1 + r)^n - 1}{r \times (1 + r)^n} \times 12 - \text{debts} \]

Monthly Income:

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Monthly Interest Rate:

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Loan Term:

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Existing Debts:

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Affordable Mortgage Amount:

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1. What is Mortgage Affordability?

The mortgage affordability calculation determines how much home you can afford based on your income, existing debts, and current interest rates. It uses the 28% rule (housing expenses shouldn't exceed 28% of gross income) to estimate a comfortable mortgage amount.

2. How Does the Calculator Work?

The calculator uses the mortgage affordability formula:

\[ \text{Affordable amount} = (\text{monthly income} \times 0.28) \times \frac{(1 + r)^n - 1}{r \times (1 + r)^n} \times 12 - \text{debts} \]

Where:

\( \text{monthly income} \) — Your gross monthly income
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Loan term in months
\( \text{debts} \) — Your existing debt obligations
0.28 — The 28% rule multiplier

Explanation: The formula calculates the present value of all future mortgage payments you can afford based on your income, minus your existing debts.

3. Importance of Affordability Calculation

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

4. Using the Calculator

Tips: Enter your gross monthly income (before taxes), the current monthly interest rate (annual rate ÷ 12), desired loan term in months, and any existing monthly debt payments.

5. Frequently Asked Questions (FAQ)

Q1: Why use 28% of income?
A: The 28% rule is a common guideline to ensure housing costs remain manageable alongside other expenses and savings.

Q2: What if my debts are high?
A: High debts will reduce your affordable mortgage amount. Consider paying down debts before applying for a mortgage.

Q3: Should I include bonuses in income?
A: Only include regular, guaranteed income. Lenders typically don't count irregular bonuses unless they're consistent.

Q4: What other costs should I consider?
A: Remember to budget for property taxes, insurance, maintenance (1-3% of home value annually), and potential HOA fees.

Q5: Is this calculation what lenders use?
A: Lenders use similar calculations but may have additional criteria. This gives you a preliminary estimate.