This home affordability calculator helps you estimate the house price you can afford based on your income, debts, down payment, and loan terms.
Mortgage Calculator
Maximum House Price
Based on your income and current market rates
Key Terms In This Home Affordability Calculator
Annual Income
The annual income is the total amount of money you earn in a year before taxes and deductions. It includes salary, wages, bonuses, commissions, and any other sources of regular income you may have.
When calculating home affordability, annual income is a critical factor, as lenders use it to determine how much you can afford to repay each month. Normally, financial institutions recommend that housing costs should not exceed a certain percentage of a borrower’s annual income to ensure financial stability.
Monthly Debts
Monthly debts encompass all regular financial obligations that an individual must pay each month. These may include credit card payments, student loans, car loans, personal loans, and any other outstanding financial commitments. Lenders assess monthly debts concerning income to determine the borrower’s debt-to-income (DTI) ratio, which plays a significant role in loan approval. A lower DTI ratio tells a borrower has more disposable income and is more likely to manage mortgage payments effectively.
Down Payment
A down payment is the upfront amount paid when purchasing a home, usually expressed as a percentage of the total home price. A higher down payment reduces the loan amount and may lead significantly to better loan terms, such as lower interest rates and the elimination of private mortgage insurance (PMI).
Lenders usually require a minimum down payment, with conventional loans typically needing at least 3-20% of the home’s purchase price, depending on creditworthiness and loan type.
Interest Rate
The interest rate represents the cost of borrowing money for a mortgage, expressed as a percentage of the loan amount. It significantly impacts the overall cost of homeownership, as higher interest rates result in increased monthly mortgage payments. Interest rates may be fixed, remaining constant throughout the loan term, or variable, changing periodically based on market appetite. Lenders decide to set interest rates based on factors such as credit score, loan type, and economic trends.
Loan Term
The loan term refers to the duration over which a borrower agrees to repay the mortgage. Common loan terms are 15, 20, or 30 years, with longer terms normally resulting in lower monthly payments but steep overall interest costs. Shorter loan terms usually have higher monthly payments but allow borrowers to build equity faster and pay less interest over time. Choosing the right loan term depends on financial goals and budget constraints.
Property Taxes
Property taxes are recurring payments levied by local governments based on the assessed value of a home. These taxes fund public services such as schools, roads, and emergency services. Property tax rates vary by location and may significantly impact home affordability. Lenders normally include property tax payments in the monthly mortgage payment, holding the funds in an escrow account to ensure timely tax payments.
Homeowners Insurance
Homeowners insurance provides financial protection against damages to the property due to unforeseen events such as fires, storms, theft, or vandalism. Most mortgage lenders require homeowners to carry insurance to protect the property, which serves as collateral for the loan. Premiums vary based on factors such as location, home value, and coverage level. Including insurance costs in the affordability calculation ensures that borrowers account for all ownership expenses.
HOA Fees
Homeowners Association (HOA) fees apply to properties within managed communities. These fees cover maintenance and amenities such as landscaping, security, and shared facilities. HOA fees vary depending on the community’s services and may significantly impact monthly housing costs.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is required by lenders when a borrower makes a down payment of less than 20% on a conventional loan. PMI protects the lender in case of default, adding cost to the borrower’s monthly mortgage payment. Once sufficient equity is built in the home, PMI may be removed.
Est. Monthly Payment
The estimated monthly payment includes principal, interest, property taxes, homeowners insurance, and any additional costs such as HOA fees or PMI. This figure sets the total amount a borrower will pay each month toward homeownership. Accurately estimating this payment ensures that the borrower selects a home within their financial means and avoids excessive debt burden on their shoulders.
Total Monthly Costs
Total monthly costs include all housing-related expenses combined. This encompasses mortgage payments, property taxes, insurance, HOA fees, and any other recurring costs associated with homeownership.