House Affordability Calculator

Affordability Formula:

\[ \text{Affordable House} = \frac{\text{Income} \times 0.28}{12} \div \left(\frac{\text{Rate}}{12} \times \frac{(1 + \frac{\text{Rate}}{12})^{360}}{(1 + \frac{\text{Rate}}{12})^{360} - 1}\right) \]

Affordable House Price:

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1. What is the House Affordability Calculator?

The House Affordability Calculator estimates the maximum home price you can afford based on your income and current mortgage interest rates, following the standard 28% front-end debt-to-income ratio guideline.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

\[ \text{Affordable House} = \frac{\text{Income} \times 0.28}{12} \div \left(\frac{\text{Rate}}{12} \times \frac{(1 + \frac{\text{Rate}}{12})^{360}}{(1 + \frac{\text{Rate}}{12})^{360} - 1}\right) \]

Where:

\( \text{Income} \) — Annual income in USD
\( \text{Rate} \) — Annual interest rate in decimal form (e.g., 0.05 for 5%)
0.28 — Standard 28% debt-to-income ratio
360 — Loan term in months (30 years)

Explanation: The formula calculates the maximum mortgage payment you can afford (28% of monthly income) and then determines the loan amount that would result in that payment at the given interest rate.

3. Importance of Affordability Calculation

Details: Calculating home affordability helps prevent overextending financially and ensures you can comfortably make mortgage payments while covering other living expenses.

4. Using the Calculator

Tips: Enter your gross annual income (before taxes) and current mortgage interest rate (as a decimal, e.g., 0.05 for 5%). The calculator assumes a standard 30-year mortgage term.

5. Frequently Asked Questions (FAQ)

Q1: Why use 28% as the debt-to-income ratio?
A: The 28% rule is a common guideline suggesting you shouldn't spend more than 28% of your gross income on housing expenses.

Q2: Does this include property taxes and insurance?
A: No, this calculates principal and interest only. You should budget an additional 1-2% of home value annually for taxes and insurance.

Q3: What if I have other debts?
A: Lenders typically use a 36% total debt-to-income ratio (including all debts). If you have significant other debts, you may need to adjust downward.

Q4: How does down payment factor in?
A: This calculates the total loan amount. To determine purchase price, add your planned down payment to the result.

Q5: Is 30 years the best mortgage term?
A: While 30-year terms have lower payments, shorter terms (15-20 years) save interest but require higher monthly payments.