Home Affordability Calculator

Determine Your Maximum Home Budget and Mortgage Qualification

How Much House Can You Actually Afford?

Home affordability isn't just about price tags—it's about monthly payments, debt-to-income ratios, down payments, property taxes, insurance, and interest rates. Just because a bank approves $400,000 doesn't mean a $400,000 house fits your budget comfortably. Many people over-extend on mortgages, sacrificing financial flexibility and retirement savings. This calculator uses lender standards and realistic assumptions to show what you can genuinely afford without financial stress. True affordability is 25-30% of gross monthly income maximum for housing costs.

Understanding Debt-to-Income Ratio (DTI)

Banks examine debt-to-income ratio: monthly debt payments divided by monthly gross income. $3,000 monthly housing payment plus $500 other debts = $3,500 total debt on $7,000 gross income = 50% DTI. Lenders limit this: conventional loans typically 43% max DTI (some go 50% if excellent credit/savings). Example: $10,000 monthly gross income × 43% = $4,300 maximum monthly debt. Subtract existing debts ($500 car loan) leaves $3,800 for mortgage. DTI is critical limiting factor—excellent credit, large down payment, low interest rate all matter less than DTI approval.

The Hidden Costs Beyond Mortgage Payment

Property Tax: Varies wildly by location—0.5% to 2% of home value annually. $500,000 home in New Jersey (2% rate) costs $10,000/year ($833/month); same home in Hawaii (0.3% rate) costs $1,500/year ($125/month). Research local property tax before choosing neighborhoods.

Insurance: $100-300/month typical, depending on home value, location, catastrophe risk. Higher in hurricane/earthquake zones. Home value $500,000 might require $200-250/month insurance, not $100.

HOA Fees: Common in condos/planned communities: $100-500+/month for shared amenities. Easy to overlook but required payment included in affordability calculation. Building with $300/month HOA effectively costs $3,600 extra yearly in reduced affordability.

Maintenance & Repairs: Industry estimate: 1-2% of home value annually. $400,000 home = $4,000-8,000 yearly maintenance, repairs, replacements (roof eventually costs $8,000-12,000, HVAC $5,000-8,000). Budget must reserve emergency funds.

Down Payment Strategy: 20% vs Lower

20% Down (No PMI): Classic standard. Avoids Private Mortgage Insurance (PMI) $100-200/month additional cost on 80% loans. Lenders prefer 20%—slightly better rates. Downside: requires $60,000 on $300,000 home—large saving accumulation time.

3-5% Down (PMI Required): Enables homeownership faster on lower savings. PMI roughly 0.5-1% of loan amount annually. $300,000 home, 5% down = $15,000 down, $285,000 loan, roughly $1,425-2,850 annual PMI ($119-238/month). Higher monthly payment but enables earlier home purchase.

Down Payment Decision: Time opportunity cost matters. Waiting 2 years accumulating 20% down while renting delays home equity building, misses potential appreciation. 5% down enables earlier purchase, builds equity sooner. PMI temporary—drops automatically at 20% equity (through payments + appreciation). For stable 3-5 year housing plans, lower down payment often optimal despite PMI.

Loan Terms: 15-Year vs 30-Year Mortgages

30-Year Mortgages (Most Common): Lower monthly payments (~$1,432 on $300,000 at 6.5%). More monthly flexibility, easier to manage alongside other expenses. Significantly more total interest (~$250,000+ total paid vs $300,000 borrowed).

15-Year Mortgages (Faster Payoff): Higher monthly payments (~$2,145 same loan) but pay off 50% faster. Save $100,000+ in interest over life of loan. Requires higher monthly budget comfort. Good for stable high-income earners comfortable with higher payments.

Hybrid Strategy: Most optimal: 30-year mortgage (lower payment, flexibility), then pay extra monthly toward principal. Putting extra $200/month principal payment can cut 5 years off loan, saving $50,000+ interest. Maintains flexibility (if income drops, revert to standard payment) while accelerating payoff when possible.

Interest Rate Impact: 1% Matters Enormously

$300,000 30-year mortgage: at 5.5% rates to $1,519/month (roughly $246,000 interest). Same loan at 6.5% = $1,896/month ($382,000 interest). That 1% difference = $377/month payment increase, $136,000 total additional interest. Shopping rates aggressively pays dividends. Improving credit score 20-30 points (paying down debt, fixing errors) can lower rate 0.25-0.5%, saving $50,000+ over loan lifetime. Worth effort.

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What You Can Afford

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Down Payment (Your Savings)
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Loan Amount
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Monthly Payment (P&I)
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Est. Property Tax + Insurance (Monthly)
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Total Monthly Payment
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Monthly Income Available
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Budget Constraints
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  • Down Payment: $0
  • DTI Ratio: 0%

Frequently Asked Questions About Home Affordability

Lenders maximize lending, not your financial health. Banks approve what they'll get paid back, not what's financially healthy for you. $600,000 approval doesn't mean afford $600,000 comfortably—it means you can theoretically carry debt without defaulting. This calculator uses 43% DTI (lender maximum conservative limit) and realistic cost estimates. Many buyers get approved at 50%+ DTI, house-poor, unable to retire, emergency-fragile. Approval amount ≠ affordable amount. Lenders don't care about your financial goals; conservative self-calculation does.
Always leave room. Maximum approval assumes stable income, zero emergencies, no kids, unchanged expenses—unrealistic. Life happens: job change, illness, kids, unexpected repair. Home at 25% DTI (not maximum 43%) leaves financial flexibility. $400,000 maximum home at 43% DTI feels tight; $300,000 home at 25% DTI leaves breathing room for emergencies, retirement savings, unexpected life changes. Short-term stretched finances leads to long-term stress and potential default.
Depends on timeframe and market. Buying requires 5+ year commitment (closing costs, buying+selling fees = 8-12% of home value—$30,000 on $400,000 home). Renting provides flexibility. Historically, buying builds equity (paying yourself) vs renting (paying landlord). BUT: buying in overheated markets (high price-to-rent ratios) may not outperform renting. Personal: do you want stability/customization (buy) or flexibility/simplicity (rent)? Calculate your specific scenario with realistic rents vs mortgage costs including taxes/insurance/maintenance.
Dramatically. Borrowers with 740+ credit scores get best rates (~5.5%). Those with 680-700 pay 0.75-1% premium (~6.25-6.5%). 620-650 credit pays 1.5-2% premium (~7-7.5%). On $300,000 loan, moving from 620-credit to 740-credit saves $2,000-3,000 annually ($166-250 monthly). Worth improving credit 6-12 months if close to better tier—eliminating credit card debt, paid-off derogatory marks, even correcting errors can raise scores significantly.
Absolutely. Pre-approval shows sellers you're serious and financed (competitive advantage in offers). Pre-approval also reveals your true affordability number—this calculator estimates, but actual approval depends on employment verification, debt history, down payment documentation. Getting pre-approved eliminates surprises when making offers. Worth noting: pre-approval expires 60-90 days; close on home before expiration or re-qualify. Pre-approval impacts credit minimally (one inquiry), but shopping rates within 2-week window bundles inquiries into one credit hit.
PITI = Principal + Interest + Taxes + Insurance. Principal/interest go to lender paying loan. Taxes go to local government. Insurance covers home protection against fire/theft. Most mortgages "escrow" taxes/insurance—lender collects monthly (1/12 of annual), paying when due. Your mortgage payment appears as single amount but covers four components. Some people confuse this—thinking payment is just principal/interest. Taxes/insurance add 30-50% to base payment. Property taxes/insurance vary by location (10% difference between states easily).