1. What is Mortgage Affordability?

Mortgage affordability refers to the maximum loan amount you can qualify for based on your income, debts, and the lender's debt-to-income (DTI) ratio requirements. It helps determine your home buying budget.

2. How Does the Calculator Work?

The calculator uses the mortgage affordability formula:

Where:

• \( \text{Income} \) — Your gross annual income ($)
• \( \text{DTI Ratio} \) — Lender's maximum allowed debt-to-income ratio (typically 0.36-0.43)
• \( \text{Monthly Payment Rate} \) — Monthly payment per dollar of mortgage (includes principal, interest, taxes, insurance)

Explanation: The formula calculates how much mortgage payment your income can support based on the lender's DTI requirements.

3. Understanding DTI Ratio

Details: Debt-to-Income (DTI) ratio is the percentage of your monthly gross income that goes toward paying debts. Most lenders prefer a DTI of 36% or less, with some going up to 43% for qualified borrowers.

4. Using the Calculator

Tips:

• Enter your gross annual income before taxes
• Use 0.36 for conservative estimates or your lender's maximum allowed ratio
• Monthly payment rate is typically 0.004167 (for 30-year fixed at 3% interest including taxes/insurance)

5. Frequently Asked Questions (FAQ)

Q1: What's included in DTI ratio?
A: All monthly debt payments including credit cards, auto loans, student loans, and the proposed mortgage payment.

Q2: How accurate is this calculator?
A: It provides a general estimate. Actual approval amounts depend on credit score, down payment, and lender policies.

Q3: Should I borrow the maximum amount?
A: Not necessarily. Consider your lifestyle, savings goals, and potential future expenses before maxing out your budget.

Q4: How does interest rate affect affordability?
A: Higher rates increase monthly payments, reducing the amount you can borrow. The monthly payment rate accounts for this.

Q5: What about down payment?
A: This calculator shows loan amount. Add your down payment to determine total home price you can afford.