How to Use the Mortgage Affordability Calculator
- Enter your gross household income before taxes.
- Add the monthly payments on your other debts such as car loans, student loans and card minimums.
- Enter your down payment, an expected rate and loan term.
- Set the property tax rate and insurance for the area you are considering.
- Adjust the two ratio limits if your lender uses different ones, then press Calculate.
Formula
Housing budget = lesser of: income ÷ 12 × housing limit income ÷ 12 × total debt limit − other debts Available for P&I and tax = housing budget − insurance − HOA Price = (available + down payment × f) ÷ (f + t) f = monthly payment per $1 borrowed, t = monthly tax rate
Example Calculation
With $90,000 income, $500 of other debts, $40,000 down, a 6.5% rate and a 30-year term, the housing limit is $2,100 (28% of $7,500) and the total-debt limit is $2,200 after subtracting debts, so the housing limit controls. After insurance of $150, about $1,950 remains for principal, interest and property tax, which supports a price of roughly $304,000 once property tax on that home is covered.
What Is a Mortgage Affordability Calculator?
It works backward from your finances. Instead of starting with a price and finding a payment, you start with income and debts and find the price. That makes it a useful first step before touring homes or asking for a pre-approval.
How Lenders Decide What You Can Afford
Underwriters compare your monthly obligations with your gross income. A lower ratio signals more breathing room. They also review credit history, employment, savings after closing and the property itself. A calculator cannot replicate all of that, but the two ratios capture the core of it.
Factors That Change the Result
Paying off a car loan can raise your budget by the amount of that payment. A larger down payment raises the price you can reach without raising the payment. A higher interest rate does the opposite, and each percentage point can reduce purchasing power by roughly a tenth. Property tax rates matter too: the same payment buys less house where taxes are high.
Tips
- Pay down credit cards before applying to improve both ratios and your credit score.
- Run the numbers at a rate one point higher than today’s quote to see your cushion.
- Decide on a comfortable payment first, then check it against the maximum.
- Keep three to six months of expenses in reserve using the emergency fund calculator.
Common Mistakes
- Using take-home pay when the ratios are based on gross income.
- Ignoring HOA dues and insurance, which can be substantial in some areas.
- Counting bonus or side income that a lender will not accept.
Read how much house can I afford for the reasoning behind these limits, and check your ratios with the debt-to-income ratio calculator.