Mortgage Affordability Calculator

Understanding Home Mortgage Affordability

Buying a home is a big step. Clear numbers and simple rules help you understand what you can handle. When you know how lenders judge your money, you gain confidence. This guide explains the key ideas and shows how affordability is calculated.

The 28/36 Rule

Most lenders follow the 28/36 rule. It sets limits on how much of your income can go toward housing and debt.

• Housing limit — Your monthly housing cost should stay under 28 percent of your gross income. This cost includes the loan payment, property tax, insurance, and any mortgage insurance.
• Debt limit — Your total debt should stay under 36 percent of your gross income. Total debt includes your housing cost plus items like car payments, credit cards, and student loans.

These limits help protect you from stress. They keep your budget steady even when life changes.

The Role of the Down Payment

Your down payment shapes your loan size and your monthly payments. A 20 percent down payment removes PMI. Many people still buy homes with 3 to 5 percent down. Smaller down payments raise the total cost because PMI adds to your monthly bill.

Think about more than the interest rate. Look at the full picture. Include PMI, taxes, insurance, and HOA fees. A home with a lower price but higher fees can cost more each month than a home with a higher price and fewer extras.

Why an Emergency Fund Matters

Homes need care. Systems break. Roofs leak. Water heaters fail. You need money ready for the sudden problems that come with home ownership. An emergency fund with 3 to 6 months of expenses covers these shocks. It lets you fix issues fast. It keeps your loan payments steady. It protects you from risk in a way a low monthly payment cannot.

Buyers who skip this step often feel pressure later. A strong emergency fund gives you peace and space.

The Impact of Credit Scores

Credit scores shape the interest rate a buyer receives on a home loan. Lenders review this score to judge risk. Higher scores signal steady payments and lower risk. Lower scores tell a lender that missed payments or high balances are more common. This score affects the cost of the loan from the first day. A strong score keeps the monthly payment lower, which helps long term budgets.

What is a good credit score?

Most lenders see a score above 740 as strong. Borrowers in this range usually get the lowest rates. A score between 670 and 739 is average. Rates in this range stay competitive, though the cost tends to rise. A score from 580 to 669 is poor. Buyers in this group pay more for the same loan. The difference can reach hundreds of dollars each month. That extra cost changes the total loan amount a buyer can afford.

How to Build a Better Score

This relationship connects price, risk, and access. A better score gives the buyer more power in the loan process. It raises the loan limit because lower rates create space in the monthly budget. A poor score does the opposite. It shrinks the budget and narrows the options. Buyers who want stronger offers can improve a score by lowering balances and paying on time. These steps build a path to cheaper loans and a more stable home purchase.

How Affordability Is Calculated

Affordability begins with your income. Lenders check your gross monthly income, your current debts, and your planned housing costs.

Start with the 28 percent limit. Multiply your income by 0.28. That number shows the highest housing cost that fits the rule. Then check the 36 percent limit. Multiply your income by 0.36 and subtract your other debts. This gives your true ceiling.

Your loan officer then runs the numbers. They use the interest rate, loan term, and down payment to find the loan amount that fits your limits. They add taxes and insurance to find the final payment. The loan amount plus your down payment gives you the home price you can afford.

Below is the formula we use to calculate maximum mortgage amount:

Bringing It All Together

A home that fits your life has three traits. The payment sits under the 28 percent limit. Your full debt stays under the 36 percent limit. You still hold an emergency fund after closing. When these pieces line up, you gain strength and stability. Home ownership feels better when the home fits your money. These rules help you find that fit.