Home Affordability Calculator 2023
Buying a home is probably be one of the most expensive purchases you’ll make in your lifetime. It will be best if you can determine how much house you can reasonably afford. (This is often different from how much house you want to buy.) The Home Affordability Calculator will help you understand where your home buying price point, inclusive of interest, should fall. Don’t forget that you can save your calculations as a PDF when you’re done.
How Much House Can I Afford
Income Information
Mortgage Information
Optional House Information:
Closing Costs
Repairs and Improvements Needed
Internal Calculation
Years: | |
Number of Compounding Periods: | 12 |
Number of Payments Per Year: | |
Total Periods: | |
Rate per Period: |
Results
Income Available: | |
Monthly Payment: | |
Payment Per Period: | |
Total Mortgage Available: | |
House You can Afford: |
By using this calculator you agree to terms and conditions. These calculators are designed to be informational and educational tools only, and when used alone, do not constitute investment or financial advice. We strongly recommend that you seek the advice of a financial services professional before making any type of investment or deciding on your financial matters. This model is provided as a rough approximation of future financial performance. The results presented by this calculator are hypothetical and may not reflect the actual growth of your own investments. We can't take into account potential lender fees, payoff schedule can be longer than in the estimation. Mortgagecalculator and its affiliates are not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by these tools. Mortgagecalculator is not responsible for any human or mechanical errors or omissions.
Step-by-Step Instructions for Using the Home Affordability Calculator
Please note that some inputs can be either manually entered in the correct box or adjusted using the sliding scale.
- Select whether the income to be used for the house will be single or double.
- Enter your annual income pre-tax and your tax rate for each income.
- Input your current monthly debt obligations and your desired debt-to-income threshold.
- Enter the amount you will use as a down payment.
- Type in the expected interest rate for which you will qualify for your loan.
- Select the mortgage term and mortgage payment frequency.
Entering the following costs into the calculator will result in a more accurate result. Please provide values for the
- Appraisal.
- Home Inspection costs.
- Legal Fees (as applicable).
- Moving Expenses (rental of a moving truck, for example)
- Changing the locks.
- Other costs.
- Costs of Repairs and Improvements.
The home affordability calculator will adjust your results as you enter the numbers.
Important Terms And Definitions
- Annual Income Pre-Tax – Also known as gross annual income, it’s your annual salary earned over a year before taxes are taken out.
- Closing Costs – The normally acquired costs (beyond the mortgage price) for completing the home purchase. Closing costs may be paid by the seller, the buyer, or both parties.
- Current Monthly Debt Obligations – Also known as recurring debt. This is the total monthly obligations you have on a recurring basis. It can consist of credit card payments, utilities, and cell phone bills, among other items. You can either take the average value or the highest value over the last 12-month period.
- Desired Debt-to-Income Threshold – The ratio of total maximum monthly debt you prefer to own divided by your pre-tax monthly income. It is written as a percentage.
- Down Payment – The initial payment made for your mortgage.
- House You Can Afford – The maximum amount of money that you can afford to pay for a house, based on your finances.
- Income – Money received from investments or work; also known as a salary.
- Interest Rate – The cost for use of the loan, equivalent to a percentage of the amount borrowed. The interest rate is quoted in terms of an annual percentage rate (APR).
- Monthly Payment – The amount paid each month to reimburse the lender for your mortgage loan.
- Mortgage Payment Frequency – How often you reimburse the lender for the loan. A greater reimbursement frequency will save you money.
- Mortgage Term – The duration of the loan.
- Payment Per Period – The amount reimbursed per month divided by how many times reimbursement occurs. There are two assumptions. Assumption #1: all payments are equal. Assumption #2: a period equals a month since you must make a monthly minimum reimbursement. In that case, your payment per period is your monthly payment. If you made two deposits, your payment per period is the sum of the payments divided by two.
- Tax Rate – The highest tax percentage (marginal tax rate) that is applied to your income.
- Total Mortgage Available – The largest loan you should take on to purchase a home.
How to Interpret the Results of the Home Affordability Calculator
The results will be displayed as a short table based on your inputs and the internal calculations. It will show your available income for house buying. You will see what your monthly payment should be, and the payments per period. The table then shows the total mortgage available and the actual house you can afford.
Worked Examples
This house affordability calculator can produce very accurate results when more data is provided. For now, we’ll use simple examples with limited input. Let’s say that you’re a single person with a $100,000 annual income, and are in the 22% tax bracket. Your monthly debt obligations are $1000, and you would prefer your debt-to-income threshold at 25% or less. You’ve been financially responsible, so you have excellent credit and $50,000 saved up for a down payment. The lender is offering a 30-year fixed-rate loan with a 3.8% interest rate, for which you will pay monthly.
For simplicity, let’s say the following optional house information is true.
Your results would be as seen below. Pay attention to the total mortgage available, and the house you can afford. These are your golden numbers when home buying. Any home you consider should not exceed these numbers. Don’t forget to assess the remaining results, as these would affect your monthly cash flow.
You delay purchasing the house for a year. In the meanwhile, your significant other proposes. Now you’re looking for a home for the both of you, supported by two incomes. You are in similar fields, so your income is not drastically different, and you both have the same tax rate. Your monthly debt obligations may have increased, but you both wish to keep a debt-to-income ratio of 25% or less. The new calculator inputs are shown below.
Unfortunately, interest rates have increased since last year, but your partner is also fiscally responsible. With their excellent credit, your combined interest rate rises slightly to 4.05%. They have also saved $60,000, giving you a combined total of $110,000 as a down payment. After some discussion, you agree to do bi-weekly payments. Assume your closing costs are the same.
Your results would be shown in the table below.