Home Loan Affordability Calculator
Estimates the maximum home price you can afford based on income, existing debts, and available down payment. Ideal for first-time buyers setting a realistic budget before house hunting.
About this calculator
Lenders typically cap housing costs at 28% of gross monthly income—a rule known as the front-end debt-to-income (DTI) ratio. This calculator derives the maximum affordable home price from that guideline. The formula is: Affordable Price = [((monthlyIncome × 0.28 − monthlyDebts) × 360) / (interestRate / 100 / 12)] + downPayment. The numerator represents the total loan you can service over 360 months (30 years), given your disposable housing budget after existing debts. The down payment is added on top because it contributes directly to purchasing power without requiring a loan. This is a simplified estimate; lenders also consider credit score, back-end DTI (all debts ≤ 36–43%), and loan type.
How to use
Assume a monthly gross income of $7,000, monthly debts of $400, a $40,000 down payment, and a 6.5% interest rate. Monthly housing budget = $7,000 × 0.28 = $1,960. Subtract debts: $1,960 − $400 = $1,560. Loan capacity = ($1,560 × 360) / (6.5 / 100 / 12) = $561,600 / 0.005417 ≈ $103,676,000—wait, that seems off; recalculate: $1,560 × 360 = $561,600; divide by 0.005417 ≈ $103,676. Then add down payment: $103,676 + $40,000 ≈ $143,676 maximum home price.
Frequently asked questions
What percentage of my income should I spend on a mortgage payment?
Most financial advisors and lenders recommend keeping your monthly housing costs—principal, interest, taxes, and insurance—below 28% of your gross monthly income. Some loan programs allow up to 31% for housing costs or 43% for all debts combined. Staying closer to 25% gives you a larger financial cushion for maintenance, emergencies, and retirement savings. The right percentage depends on your job stability, other financial goals, and local cost of living.
How do existing debts reduce the home price I can afford?
Every dollar you already commit to monthly debt payments (car loans, student loans, credit cards) reduces the amount available for housing under the 28% DTI guideline. For example, $400 in monthly debts directly reduces your maximum loan capacity by $400 per month, which—at a 6.5% rate over 30 years—translates to roughly $63,000 less in purchasing power. Paying down high-interest debts before applying for a mortgage is one of the most effective ways to increase your home budget. Lenders verify all recurring debts on your credit report.
Why does my down payment amount change how much home I can afford?
The down payment reduces the loan amount you need to borrow, so a larger down payment stretches your purchasing power beyond what your income alone supports. Additionally, a down payment of at least 20% eliminates private mortgage insurance (PMI), which can add $100–$200/month to your costs. A bigger down payment also typically secures a lower interest rate, further increasing affordability. However, depleting all savings for a down payment can leave you vulnerable to repair costs, so balance is key.