Home Affordability Calculator

Maximum Monthly Payment (M): USD/month

Loan Term (L): years

Annual Interest Rate (R): %

Money You Have (D, optional): USD

Monthly Debt (B, optional): USD/month

Homeowner Insurance (N, optional): USD/month

Property Tax (T, optional): USD/month

Closing Costs (C, optional): %

1. What is the Home Affordability Calculator?

Definition: This calculator estimates the maximum loan amount (A) you can afford based on your maximum monthly payment, loan term, and interest rate, with optional adjustments for down payment, debts, insurance, taxes, and closing costs to estimate the maximum home value (H).

Purpose: Helps prospective homebuyers determine their borrowing capacity and affordable home price, aiding in financial planning and home shopping.

2. How Does the Calculator Work?

The calculator uses these formulas:

Formulas:

$ A = \frac{\left(1 - \left(1 + \frac{R}{1200}\right)^{-L \times 12}\right) \times (M - B - N - T)}{\frac{R}{1200}} $
$ H = \frac{A + D}{1 + \frac{C}{100}} $

Where:

$ A $: Maximum loan amount (USD)
$ M $: Maximum monthly payment (USD/month)
$ R $: Annual interest rate (%)
$ L $: Loan term (years)
$ B $: Monthly debt (USD/month, default 0)
$ N $: Monthly homeowner insurance (USD/month, default 0)
$ T $: Monthly property tax (USD/month, default 0)
$ H $: Maximum home value (USD)
$ D $: Down payment (USD, default 0)
$ C $: Closing costs (%, default 0)

Steps:

Step 1: Enter values. Input maximum monthly payment ($ M $), loan term ($ L $), interest rate ($ R $), and optionally down payment ($ D $), monthly debt ($ B $), insurance ($ N $), property tax ($ T $), and closing costs ($ C $).
Step 2: Adjust payment. Subtract debts and expenses: $ M_{\text{adjusted}} = M - B - N - T $.
Step 3: Compute max loan. Calculate $ A = \frac{\left(1 - \left(1 + \frac{R}{1200}\right)^{-L \times 12}\right) \times M_{\text{adjusted}}}{\frac{R}{1200}} $.
Step 4: Compute max home value. If $ D $ or $ C $ are provided, calculate $ H = \frac{A + D}{1 + \frac{C}{100}} $.

3. Importance of Home Affordability Calculation

Calculating the maximum loan is key for:

Financial Planning: Ensures mortgage payments fit within your budget, accounting for debts and expenses.
Loan Approval: Helps estimate the mortgage amount lenders may offer based on payment capacity.
Home Shopping: Guides buyers to properties they can afford, considering down payment and closing costs.

4. Using the Calculator

Example: For a buyer with $ M = \$2,000 $, $ L = 30 $, $ R = 5\% $, $ D = \$20,000 $, $ B = \$500 $, $ N = \$100 $, $ T = \$200 $, $ C = 3\% $:

Step 1: Input values.
Step 2: Adjust payment: $ M_{\text{adjusted}} = 2,000 - 500 - 100 - 200 = \$1,200 $.
Step 3: Compute max loan: $ A = \frac{\left(1 - \left(1 + \frac{5}{1200}\right)^{-30 \times 12}\right) \times 1,200}{\frac{5}{1200}} \approx \$223,334.06 $.
Step 4: Compute max home value: $ H = \frac{223,334.06 + 20,000}{1 + \frac{3}{100}} \approx \$236,246.66 $.
Result: $ A = \$223,334.06 $, $ H = \$236,246.66 $.

With defaults ($ D = 0 $, $ B = 0 $, $ N = 0 $, $ T = 0 $, $ C = 0 $), $ A \approx \$372,223.44 $, $ H = \$372,223.44 $. This shows the buyer can borrow up to $223,334.06, affording a home up to $236,246.66 with the optional inputs.

5. Frequently Asked Questions (FAQ)

Q: How do you calculate your house affordability?
A: House affordability is calculated by determining the maximum loan based on your maximum monthly payment ($ M $), loan term ($ L $), and interest rate ($ R $), adjusted for optional monthly debt ($ B $), insurance ($ N $), and property tax ($ T $). Use: $ A = \frac{\left(1 - \left(1 + \frac{R}{1200}\right)^{-L \times 12}\right) \times (M - B - N - T)}{\frac{R}{1200}} $. Optionally, calculate maximum home value with down payment ($ D $) and closing costs ($ C $): $ H = \frac{A + D}{1 + \frac{C}{100}} $.

Q: How do I determine my maximum monthly payment?
A: Estimate your maximum payment based on income, typically 28–36% of monthly gross income, minus existing debts and expected home expenses like insurance and taxes.

Q: Why include optional inputs?
A: Optional inputs like down payment and closing costs refine the maximum home value estimate, while debts, insurance, and taxes adjust the affordable loan amount to reflect total housing costs.