How to Calculate Home Affordability
What is Home Affordability?
Home affordability calculators estimate the maximum home price based on income, debts, down payment, and rate using the 28/36 debt-to-income rule lenders apply.
Formula
Max housing = Gross monthly income × 28%; Max total debt = Gross monthly income × 36%; Max home price ≈ Max housing × 360 months / Monthly payment factor
- I
- Gross annual income (Currency)
- D
- Existing monthly debts (Currency)
- r
- Mortgage interest rate (Annual percentage)
- DP
- Down payment amount (Currency)
Step-by-Step Guide
- 128% rule: housing ≤ 28% of gross monthly income
- 236% rule: all debts ≤ 36% of gross monthly income
- 3Use the lower of the two limits
- 4Credit score affects available interest rate significantly
Worked Examples
Input
$90k income, $500/mo debts, 6.5% rate, 10% down
Result
Max home price ≈ $310k
Frequently Asked Questions
What's included in "debts"?
Car loans, student loans, credit cards, personal loans. NOT utilities, insurance, rent. The 36% rule includes all of these + new mortgage payment.
Do I need 20% down?
Not legally. But < 20% triggers PMI and higher rates. 3–5% is possible but expensive. 10–15% is a middle ground. Better credit score = access to lower rates at all down payments.
How does credit score affect affordability?
Huge. 620 credit score might get 7.5% rate; 780+ gets 5.5%. That 2% difference adds $100k+ in interest on a $400k mortgage. Raise credit score before buying.
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