How the House Affordability Calculator Works
When you shop for a home, the question is not "what is the payment on this price?" It is "what price can I afford?" The House Affordability Calculator answers that. It starts from your income and debts, works out the largest monthly housing payment a lender would allow, and then works backward to the highest price that payment can buy.
What you enter
- Income before tax: your yearly income. For a couple buying together, add both incomes.
- Monthly debt payments: car loans, student loans, credit card minimums and similar. Do not include your current rent.
- Down payment: the cash you will put down.
- Interest rate and loan term: for the mortgage.
- Property tax, insurance and HOA fee: the other parts of the monthly cost of owning.
- Mortgage insurance: a yearly charge, as a share of the loan, that applies when you put down less than 20%.
- Lender guideline: how strict to be, explained below.
The two lender rules
Lenders check two ratios of your income before tax:
- The front-end ratio: your total housing cost (loan payment, property tax, insurance, mortgage insurance and any HOA fee) should be no more than a set share of your monthly income.
- The back-end ratio: your housing cost plus all your other debt payments should be no more than a larger share of your monthly income.
The calculator offers three guidelines, and you can see the result for each:
| Guideline | Housing | Housing plus debts |
|---|---|---|
| Careful | 25% | 33% |
| Standard | 28% | 36% |
| Stretch | 31% | 43% |
The housing budget is the smaller of the two limits:
budget A = monthly income x housing share budget B = monthly income x total share - your monthly debts housing budget = the smaller of A and B
From the budget to a price
The housing budget must pay for everything each month. If the price is H and your down payment is D, then the loan is H - D, and:
housing budget = loan payment + property tax + insurance + HOA + mortgage insurance loan payment = (H - D) x payment factor property tax = H x tax rate / 12
The payment factor is the monthly payment for each $1 borrowed, at your rate and term. The equation is solved for H. Mortgage insurance is added only if your down payment is less than 20% of the price, so the calculator checks both cases and uses the one that fits.
A worked example
You earn $90,000 a year, which is $7,500 a month. Your debts are $500 a month. You have $40,000 for a down payment, the rate is 6.5% for 30 years, property tax is 1.1% a year, and insurance is $1,500 a year. You use the standard guideline.
| Step | Amount |
|---|---|
| Housing limit (28% of $7,500) | $2,100 |
| Total limit (36% of $7,500) minus debts of $500 | $2,200 |
| Housing budget (the smaller) | $2,100 |
| Home price you can afford | $287,847 |
| Loan amount (down payment is 13.9%) | $247,847 |
The $2,100 a month is used like this:
| Part of the payment | Per month |
|---|---|
| Loan payment (principal and interest) | $1,566.56 |
| Property tax | $263.86 |
| Home insurance | $125.00 |
| Mortgage insurance (down payment is under 20%) | $144.58 |
| Total | $2,100.00 |
Chart: how a month of income is used
Housing █████████████████ $2,100 (28%) Other debts ████ $500 (7%) Everything else ████████████████████████████████████████ $4,900 (65%)
What changes the price
On the same numbers:
| Change | Price you can afford |
|---|---|
| Careful guideline (25% / 33%) | $259,077 |
| Standard guideline (28% / 36%) | $287,847 |
| Stretch guideline (31% / 43%) | $316,617 |
| Interest rate 5.5% | $310,042 |
| Interest rate 7.5% | $268,250 |
| Down payment of $100,000 instead of $40,000 | $360,224 |
| Monthly debts of $1,800 instead of $500 | $142,017 |
A one-point drop in the rate adds more than $20,000 to the price. Paying off debts helps a lot, because at that point your debts, not your housing share, become the limit.
How to use the result
- Treat the result as an upper limit, not a target. A lower price leaves more room for savings, repairs and life.
- Remember the cash needed at closing. The calculator shows it, including your down payment and closing costs.
- Lenders also look at your credit score, savings and job history. A pre-approval from a lender is the real test.
- Budget for maintenance, which is not in these ratios. A common rule is about 1% of the home's value each year.
What this calculator does not include
- Your take-home pay. The guidelines use income before tax, so your real budget can feel tighter.
- Special loans, such as FHA, VA or USDA loans, which have their own rules.
- Utilities, repairs, furniture and moving costs.
- Changes in property tax, insurance and your income over time.
This tool gives an estimate for general information only. It is not financial advice or a loan approval. Talk to a lender for a real pre-approval.