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Calculator: How Much Home Can I Afford?

Calculator: How Much Home Can I Afford?
Tim Lucas - Home.com
VP of Content, Home.com

How much home can I afford? It’s a common question that new homebuyers ask. And the answer isn’t always straightforward. A lot depends on your income, debt payments, down payment, and other factors.

This home affordability calculator examines your financial details and tells you how much you might be able to spend on a home.

How to use this calculator

It just takes a few seconds to get started. Simply put in your income, down payment, and monthly debts. The calculator will estimate your purchase price based on the monthly payment and common lending rules.

Click “Advanced” to show more options, such as your desired debt-to-income ratio, or DTI. Your DTI is a number your lender looks at to know how much of your income goes toward your debts plus future home payment. If you tend to be more financially conservative, try dropping your DTI from the default of 41% to around 36%, which should give you plenty of funds left over each month for other expenses.

Keep in mind that any calculator is just a starting point. To learn what you can afford, hit the green “Get Started” button where you can request a personalized analysis from a knowledgeable professional. If you’re serious about homebuying, this is your next step.

Methodology

This home affordability calculator factors in your income, down payment, debts, mortgage rate, and even mortgage insurance to estimate a monthly payment.

It uses this payment to reverse engineer a home price that you may be able to afford.

The maximum payment is determined based on a default debt-to-income ratio of 41%. You can move this ratio higher or lower depending on your risk tolerance. For some loan types, lenders will consider DTIs above 50%. That means 50% of your before-tax income will go toward monthly debts and future home payment. But you might feel more comfortable with a lower DTI. Thirty-six percent is a commonly accepted conservative number.

The calculator also factors in homeowner’s insurance, property tax, and HOA dues, if applicable. As with any calculator, you get more accurate results with accurate inputs. It could be a good idea to check out local property tax rates in the area you want to buy. Property taxes can vary widely from county to county, or even from one neighborhood to the next.

Lastly, the calculator estimates your private mortgage insurance based on your down payment amount. Any down payment less than 20% will require mortgage insurance. To avoid PMI, simply increase your down payment until you reach 20% of the suggested home price.

‘How much home can I afford’ calculator definitions

Annual income: The amount of combined pre-tax income for you and any co-borrowers.

Down payment: The amount of funds you have allocated to put down on the home. The more you put down, the lower your payment will be, and the higher home price you can afford.

Monthly debts: Debt payments for credit cards, student loans, auto loans, and other personal debt. Do not include other monthly expenses like utilities, groceries, cell phone bills, or rent.

Loan term: The number of years your lender sets to pay off the loan. The most common loan term is 30 years, but 10, 15, 20, and 25-year loans are available as well. Some lenders can even offer custom terms, such as 12 or 18 years.

Interest rate: The amount of interest you pay per year, expressed as a percentage of your loan amount. For example, you’ll pay $4,000 per year in interest on a $100,000 loan at an interest rate of 4%.

Debt-to-income ratio (DTI): DTI is a comparison between your pre-tax income and all debt payments plus your future all-inclusive home payment. For example, if you make $8,000 per month, and you pay $4,000 per month in debt payments plus future housing payment, your DTI would be 50%.

Homeowner’s insurance:¬†Lenders require you to maintain homeowner’s insurance, which pays for the home to be repaired or rebuilt in case of fire or another disaster. Most homes cost between $50-$100 per month to insure. Note that this insurance does not include flood or earthquake protection. Those policies can be as much or more than the standard homeowner’s insurance. If you need such policies, place the total insurance cost in this same box.

Property tax: The amount levied by your local jurisdiction each year when you own property. It’s important to check property tax rates in the place you plan to buy, since this cost can vary widely.

HOA dues: If your home is in a homeowner’s association, you will probably have to pay HOA dues, which go toward upkeep and maintenance of common areas. Note that HOA dues can apply to condos, but also to single-family homes within a planned unit development, or PUD.

PMI: Private mortgage insurance. This is insurance that your lender requires when you put down less than 20%. To eliminate this fee, increase your down payment amount until you’ve reached 20% of the calculator’s suggested home price.

Further Reading

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