Personal financial calculators
Home Affordability Calculator
When you're shopping for a home, it's normal to wonder: Just how much home can I afford?
To answer the question of how much mortgage can I afford, be sure to know what affordability means in home financing.
There are 3 key calculations banks use to determine how much they're willing to let you borrow. These calculations can also help you determine how much you feel comfortable with borrowing.
Loan-to-value ratio. Expressed as a percent, this number tells you how much you are borrowing as a percentage of the value of the home you're trying to buy. For instance, if you have a 20% down payment, your loan-to-value ratio is 80%. Most lenders will require you to have at least a 20% down payment. Some loans — like FHA, USDA, and VA loans — allow a lower down payment of 3% to 5%, or maybe even 0%.
Housing ratio. This is the percentage of your monthly income that you spend on monthly housing costs. Lenders typically want this number to be 28% or less. (See more below for how to determine your monthly income — and which housing costs go into calculating your monthly expenses.)
Debt-to-income ratio. The percentage of your monthly income that goes toward paying off your debt every month. This includes your home mortgage payment as well as other debt, such as student loans, car loans, and credit card balances. Lenders typically want this number to be 38% or less.
Lenders will typically look at these ratios and cap the amount you can borrow once you hit their threshold for one of them.
Here are the key numbers a lender will use to calculate these ratios:
- Monthly income. This is how much money you make each month before taxes and deductions. Include all sources of income — such as rental income, alimony, investment income — not just wages. (Self-employed people should first deduct expenses, like self-employment tax, business expenses, and health insurance premiums.)
- Debt expenses. This is how much you spend each month paying off existing debt.
- Loan term (years). This is how many years it will take you pay off your loan, that in turn impacts what your monthly mortgage payment will be.
- Interest. This is how much money you owe the lender every year, expressed as a percentage of how much unpaid principle remains. The interest rate on your loan also impacts how much your monthly mortgage payment will be.
- Down payment.
- Annual property taxes.
- Homeowner's insurance.
While these ratios will determine how much a bank will be willing to lend you, you can also use these tools to decide how much you feel comfortable borrowing. For example, maybe you and your spouse work but you want to buy a home that you can afford on one income. Or, you're self-employed and want to be sure you can continue to cover the mortgage if your income dips. To see how this impacts affordability, reduce the amount you input into the monthly income box.