Affordability Calculator
How much home can you afford?
Overview
The Affordability Calculator determines the maximum home price you can afford based on your income, existing debts, and loan type. It uses industry-standard Debt-to-Income (DTI) ratios to ensure your mortgage payments remain manageable.
Best Used For
Inputs
The calculator accepts the following input fields:
| Field | Type | Description | Default |
|---|---|---|---|
| Annual Income | currency | Your total gross annual income before taxes | $100,000 |
| Monthly Debts | currency | Total monthly debt payments (car loans, student loans, credit cards) | $500 |
| Down Payment | currency | Amount you plan to put down on the home | $50,000 |
| Interest Rate | percentage | Expected mortgage interest rate | 7.0% |
| Loan Term | select | Length of the mortgage | 30 years |
| Loan Type | select | Type of mortgage loan | Conventional |
Outputs
The calculator returns the following results:
| Output | Description |
|---|---|
| Maximum Purchase Price | The highest home price you can afford based on your inputs |
| Maximum Loan Amount | The maximum mortgage amount you qualify for |
| Estimated Monthly Payment | Total monthly housing payment including PITI |
| Front-End DTI | Housing expenses as a percentage of gross monthly income |
| Back-End DTI | All debt payments as a percentage of gross monthly income |
How It Works
Debt-to-Income (DTI) Ratios by Loan Type
Each loan type has specific DTI limits that determine how much of your income can go toward housing costs:
| Loan Type | Front-End DTI | Back-End DTI | Min Down Payment |
|---|---|---|---|
| Conventional | 28% | 36% | 3% |
| FHA | 31% | 43% | 3.5% |
| VA | No Limit | 41% | 0% |
| USDA | 29% | 41% | 0% |
| Jumbo | 28% | 36% | 10% |
Calculation Steps
Step 1: Maximum Housing Payment
Calculate using both DTI limits and take the minimum:
Front-End Limit: Gross Monthly Income × Front-End DTI
Back-End Limit: (Gross Monthly Income × Back-End DTI) − Monthly Debts
Max Payment: MIN(Front-End Limit, Back-End Limit)
Step 2: Maximum Principal & Interest
Subtract estimated taxes, insurance, and PMI from max housing payment:
Max P&I = Max Housing Payment − Monthly Taxes − Monthly Insurance − Monthly PMI
Step 3: Maximum Loan Amount
Use the standard amortization formula to calculate the loan amount from the P&I payment:
L = P × [(1 + r)^n − 1] / [r × (1 + r)^n]
Where: P = payment, r = monthly rate, n = number of payments
Step 4: Maximum Home Price
Add your down payment to get the maximum purchase price:
Max Home Price = Loan Amount + Down Payment
Key Terms
Front-End DTI
Percentage of gross monthly income that goes to housing costs only (PITI: principal, interest, taxes, insurance).
Back-End DTI
Percentage of gross monthly income that goes to ALL debt payments, including housing costs plus car loans, student loans, credit cards, etc.
Example Scenario
A first-time homebuyer with a household income of $120,000/year, $400/month in existing debts, and $60,000 saved for a down payment.
Inputs
Results
Explanation
With $120,000 annual income and conventional loan limits (28% front-end, 36% back-end DTI), this buyer can afford a home up to $385,000. The back-end DTI of 32% is within the 36% limit, leaving room for the $400/month in existing debts.
Try the Affordability Calculator
Calculate how much home you can afford based on your financial situation.
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