Check your Home Affordability
Use our affordability calculator to estimate the buying power you possess before beginning your home buying journey
Annual income
Total income before taxes earned by you and your household members within a year.
Monthly debt
Payments made towards loans or other debts, excluding regular living expenses such as rent, groceries, and utilities.
Available funds
Money you have allocated for the down payment and closing costs.
City where you're searching for a property. This information is used to determine the Interest Rate, Property Tax Rate, and Recommended Insurance Cost.
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Understanding Home Affordability
Annual Household Income
Your annual household income is the total amount you, and possibly a co-borrower, earn each year before taxes. This includes all regular income sources such as:
- Salary and wages
- Tips and commissions
- Rental income, if any
It's important to consider the entire household income to accurately assess your home affordability.
Monthly Debt
Monthly debt plays a crucial role in determining how much you can afford to pay for a mortgage each month. This includes:
- Auto, student, and personal loans
- Minimum credit card payments
- Alimony and child support, if applicable
However, you should not include regular living expenses like groceries, transportation, utilities, insurance, or your current rent/mortgage payments in this calculation.
Debt-to-Income Ratio (DTI)
The Debt-to-Income Ratio is a key metric that lenders use to assess your ability to afford a mortgage. It's the percentage of your gross monthly income (what you earn before taxes) that goes towards paying off your monthly debts. You can calculate it as follows:
DTI% = (Monthly Debt / Gross Monthly Income) × 100
DTI is usually expressed as a range between 20% to 50%, indicating different affordability levels:
20% - 36% (Affordable)
This range suggests you have a good balance between debt and income.
37% - 43% (Stretched)
In this range, you're stretching your budget a bit more to accommodate housing costs.
44% - 50% (Difficult)
This indicates a high level of debt relative to your income and suggests potential financial strain.
Other Key Factors in Home Affordability
Mortgage rates
The interest rate on your mortgage significantly affects your monthly payment. A lower rate means a lower monthly payment for the same loan amount.
Estimated monthly PITI
This is the amount you'll pay each month towards your mortgage. It typically includes principal and interest, and it may also include property taxes and homeowners insurance if you have an escrow account.
Insurance and Property Tax
Homeowners insurance and property taxes are often included in your monthly PITI. These costs vary depending on location and the value of your home.
Putting It All Together
To determine how much house you can afford
1. Calculate Your DTI
This gives you an idea of how much of your income is already committed to other debts.
2. Consider Mortgage Rates and Terms
Shop around to understand the rates and terms available to you.
3. Estimate Insurance and Property Taxes
Get an idea of these costs in your desired area.
4. Calculate the Estimated monthly PITI
Using the above information, you can estimate your monthly PITI. Make sure it fits comfortably within your budget.
Remember, while numbers are important, you should also consider your lifestyle and future financial goals. Buying a home is a significant decision, and ensuring it aligns with your overall financial plan is crucial.