Mortgage Affordability Calculator

How Does a Mortgage Affordability Calculator Work?

A mortgage affordability calculator estimates a potential home-buying budget by comparing your gross monthly income, existing debt payments and the estimated cost of a mortgage.

This calculator uses a simplified 28/36 approach. The estimated housing payment is limited to 28% of gross monthly income, while total monthly debt obligations are limited to 36% of gross monthly income under the calculator's assumptions.

The calculator then estimates the mortgage loan that could correspond to that monthly housing payment using the selected interest rate and loan term. Your down payment is added to the estimated loan amount to calculate an estimated home price.

These percentages are general affordability guidelines, not universal lending requirements. Actual mortgage underwriting can use different criteria depending on the lender, loan type, borrower and other circumstances.

Why Does Income Matter?

Gross monthly income is one of the main inputs used when estimating mortgage affordability. A higher income can support a larger housing payment under the assumptions used by this calculator, while a lower income generally results in a lower estimated housing budget.

Enter your gross monthly income before taxes and other deductions. The calculator uses this figure as the starting point for its simplified affordability calculation.

How Do Existing Debts Affect Home Affordability?

Existing monthly debt payments can reduce the amount available for a new mortgage payment. This calculator includes debts such as other recurring loan or credit payments when applying its simplified total-debt limit.

For example, two people with the same income can receive different affordability estimates if one person has substantially higher existing monthly debt payments.

How Does the Down Payment Affect Affordability?

The down payment is the amount you plan to contribute toward the purchase price of the home. In this calculator, the estimated home price is calculated by adding the estimated maximum mortgage loan to the down payment.

A larger down payment can increase the estimated purchase price supported by a given mortgage amount. It can also reduce the amount that needs to be financed.

How Does the Mortgage Interest Rate Affect the Result?

The mortgage interest rate affects the monthly payment required for a given loan amount. A higher interest rate generally means that the same monthly payment supports a smaller loan, while a lower rate generally supports a larger loan under the same assumptions.

Because mortgage rates can change over time, you can use this calculator with different interest-rate assumptions to compare potential scenarios.

How Does the Loan Term Affect Home Affordability?

The loan term is the number of years over which the mortgage is repaid. A longer loan term generally produces a lower required monthly payment for the same loan amount, while a shorter term generally produces a higher monthly payment.

Changing the loan term in this calculator can therefore change the estimated maximum mortgage loan that fits within the calculated monthly housing payment.

What Is the 28/36 Rule?

The 28/36 approach used by this calculator is a simplified budgeting method. It limits estimated housing costs to 28% of gross monthly income and total monthly debt obligations to 36% of gross monthly income.

Under this calculator's assumptions, the maximum housing payment is the lower of the 28% housing limit and the amount remaining after existing debts are considered against the 36% total-debt limit.

This is only a simplified calculation. It does not account for every expense, lending rule, mortgage product, property cost or borrower characteristic that a lender may consider.

Example: How Much House Can I Afford?

Suppose you enter $6,000 in gross monthly income, $500 in existing monthly debt payments, a $60,000 down payment, a 6% mortgage interest rate and a 30-year loan term.

With these inputs, the calculator applies its 28/36 assumptions to estimate a maximum monthly housing payment. It then uses the mortgage rate and loan term to estimate the corresponding maximum loan and adds the down payment to estimate a potential home price.

You can change any of these inputs to see how different income, debt, down payment, interest-rate and loan-term assumptions affect the result.