FOA Tools

Mortgage Affordability Calculator

Use our mortgage affordability calculator to see how much home you can afford.

Mortgage affordability calculator

You can afford a house up to
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Based on your income, a house at this price should fit comfortably within your budget. Based on your income, a house at this price may stretch your budget too thin.
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To calculate your mortgage payment affordability, you’ll need to enter your annual income, monthly debts, and down payment. With our advanced mortgage income calculator features, you can also adjust additional factors such as interest rate and loan term.

Please contact your Mortgage Advisor for an official, up-to-date, mortgage interest rate, as well as the latest mortgage information and mortgage advice. The above calculator is made available to you as an educational tool only, and calculations are based on information provided by you, the user. Any amount calculated is only an estimate. This is not an advertisement for the above terms, interest rates, or payment amounts. Finance of America Mortgage does not guarantee the applicability of the above terms in regards to your individual circumstances. Calculations may not take into account certain loan-specific costs, including but not limited to mortgage insurance, mortgage insurance premiums, funding fees, HOA fees, etc.

How our mortgage affordability calculator works

Our affordable mortgage calculator first uses your income, expenses, and down payment to arrive at a monthly payment your budget can support when buying a home. From there, it will calculate a mortgage you can afford, considering current interest rates, loan term, and additional factors.  

Annual income: Enter your gross (pre-tax) annual income from all sources. If you have a co-borrower, be sure to include their income.

Monthly debt: Total your monthly debt payments, including car loans, student loans, credit card payments, personal loans, and any court-ordered payments. Do not include recurring household expenses such as utility bills or the estimated home loan payment in the mortgage income calculator. 

Down payment: Enter how much you have available for a down payment. Your lender may require a minimum down payment depending on the loan program you’re applying for.

Debt-to-income (DTI) ratio: To calculate your DTI ratio, divide your total monthly debt payments (including your projected mortgage) by your gross (pre-tax) monthly income. Our affordability calculator mortgage DTI ratio is auto-populated with 36%; however, some loan programs allow up to a 45% DTI ratio. And in some cases, lenders may approve a DTI ratio above program limits. If you know the maximum DTI ratio your lender allows or to enter your desired ratio, adjust this field accordingly.

Interest rate: The interest rate field in our affordable mortgage calculator is auto-populated with the current average mortgage interest rate, but your actual rate will depend on your credit score, location, loan program, and other factors. For the most up-to-date interest rates in your area, speak to a local Finance of America Mortgage Advisor today

Loan term: The loan term on your mortgage plays a role in your interest rate and monthly payment amount. Our affordability calculator mortgage terms include a 30-year and 15-year fixed and 5/1 ARM loan.

Property taxes: The affordable mortgage calculator will auto-populate the property taxes based on the home price; however, you can edit the amount if you know the annual tax amount or rate on the home you want to purchase.

Home insurance: You’ll likely pay your annual homeowners insurance premium through your mortgage payment. Adjust this field on the affordable mortgage calculator if you know the yearly premium for the property you’re buying.

PMI: If you plan to put less than 20% down on a conventional (non-government) mortgage, you’ll typically pay monthly private mortgage insurance (PMI). Other loan types such as USDA, FHA, and VA loans may have mortgage insurance premiums or a funding fee. Select the box for PMI if you want the affordable mortgage calculator to include PMI in the estimated monthly payment.

Homeowners association dues: If the property you’re purchasing belongs to a homeowners association (HOA), you’ll pay monthly dues. Alternatively, if you’re buying a condo, you’ll pay condo fees. Use this field to enter the estimated amounts.

Calculating how much mortgage you can afford

As you calculate a mortgage you can afford, consider the factors that affect your ability to handle a home loan payment.

Your income and expenses play a significant role in mortgage payment affordability. Income is any money you receive consistently and regularly from all sources, including (but not limited to) salary, investment income, alimony, or child support. Expenses include debt payments and all regularly recurring expenses. While it’s important to calculate your regular income and expenses, make sure to consider how much room you want to have in your budget for savings and unexpected or occasional expenses.

A good rule of thumb when calculating a mortgage you can afford is to keep your home payments at 30% or below your gross monthly income.

Determining how much home you can afford

Mortgage payment estimates are based on your income, down payment, current debt, credit history, and other factors that lenders review during the mortgage approval process. Here’s a look at the main components of mortgage payment affordability.

Income  

Your income is one of the most critical factors that contribute to your mortgage payment affordability. As you calculate a mortgage you can afford, consider both the stability and longevity of your income sources. If you have a co-borrower, be sure to total all consistent and recurring income sources for both borrowers, and remember to use gross income (before taxes and payroll deductions).  

Down payment 

The size of your down payment directly impacts your loan amount. For example, if you’re purchasing a $300,000 home, putting down 5%, or $15,000, will mean your mortgage amount will be $285,000. Increasing your down payment to 20%, or $60,000, means your loan amount decreases to $240,000.  

Not only does your down payment affect the mortgage amount, but it also affects what type of loan you’ll qualify for. While some loan programs may require little-to-no money down, putting less than 20% down means you’ll likely have to pay for mortgage insurance in your monthly payment, decreasing your borrowing power. Use the loan affordability calculator to see how different down payments affect your loan.

Savings  

Your savings will determine how much you can put toward your down payment, closing costs, and other expenses. Depending on the loan you’re applying for, the amount of cash reserves you have on hand will play a role in your mortgage approval. Your lender will want to make sure you can afford your monthly payments in addition to unexpected or irregular expenses, such as home repair costs.

A common rule of thumb is to have at least three to six months’ worth of expenses set aside for an emergency cushion in addition to your closing funds and down payment. 

Significant savings can also offset other factors such as a low credit score or high DTI ratio. As you prepare for mortgage approval, consider focusing on increasing your savings.

Debt-to-income (DTI) ratio  

Your debt-to-income ratio reflects what percentage of your gross income goes toward your monthly debt. To calculate your DTI ratio, divide the total of your monthly debts by your monthly gross income.  

For example, if you’re currently renting and your monthly gross income is $6,000, and your monthly debts total $600, then your DTI ratio is 10%. A lender will use a maximum DTI ratio to determine your mortgage payment and loan amount.  

Besides considering a lender’s DTI ratio requirements, you may want to think about your own comfort level. Going back to the above example of a $6,000 income, if you determine that you only want a DTI ratio of 30%, then that means you want to keep your total debt payments, including your mortgage, at $1,800 or below. 

The maximum DTI ratio allowed on a mortgage depends on the loan type you’re applying for. Some lenders and loan programs look at your front-end DTI and back-end DTI ratios:

  • Front-end DTI ratio: your monthly mortgage payment (principal, interest, taxes, and insurance) divided by your gross monthly income. 
  • Back-end DTI ratio: your total monthly debts (including the projected mortgage payment) divided by your gross monthly income.

Generally, a front-end DTI ratio of 28% or less and a back-end DTI ratio of 36% or less are considered ideal. (Our affordability calculator mortgage DTI ratio field calculates back-end, or total, DTI ratio.)  

Should I buy a house or wait?

Once you calculate a mortgage you can afford, you’ll still need to consider whether you should purchase a home now or wait.

Here are some factors to think about.

Current income: Consider how your current income compares to your projected income down the road. Since your income plays a critical role in how much home you can afford, it may make sense to wait if you’re expecting a significant income increase in the future. To estimate a mortgage based on income, calculators can simulate payments based on various income scenarios.

Current debt obligations: The more non-mortgage debt you have, the less you have available for a home payment. As you estimate your budget for buying a house, calculators can help you see how much you can afford if you reduce your debt. Think about whether delaying a home purchase will give you a chance to pay down debt and increase your buying power. 

Down payment: How much you have available to put down will impact your mortgage payment and make the difference between an affordable loan and an overwhelming one. Consider whether waiting and saving up a larger down payment will improve your mortgage payment affordability.

Credit score: Your credit history will affect what type of loan you qualify for as well as what interest rate you’ll receive. Since a low interest rate will increase your buying power, it’s best to apply for a mortgage when you have a good credit score. If you have blemishes in your credit history, taking steps to improve your credit can improve your mortgage payment affordability. 

Current interest rates: Interest rates will partially determine the size of your mortgage payment. When interest rates are low, your borrowing dollars stretch further. And the opposite is true. When interest rates are high, your borrowing dollars have less power. While no one can predict the market, your local Finance of America Mortgage Advisor can shed some light on the direction of interest rates.

Home prices: Of course, the price of the property you’re buying will impact the size of your mortgage payment. Your real estate professional can give you an idea of how home prices are trending in your area and whether buying now or later would make sense. 

Mortgage affordability calculator FAQs

What is the 28%/36% rule, and why does it matter?
When using an affordable mortgage calculator, debt-to-income (DTI) ratios help determine the results. A common DTI rule of thumb some mortgage lenders use is 28%/36%.   

The 28% represents your front-end ratio. In other words, no more than 28% of your gross monthly income should go toward your mortgage payment (principal, interest, taxes, and insurance). The 36% represents your back-end ratio, meaning no more than 36% of your gross monthly income should go toward your total monthly debt payments, including your mortgage payment. 

How does your debt-to-income ratio impact affordability?
Lenders use DTI ratios to help determine how much you can afford to borrow. Both your income and existing debt determine what’s available for a mortgage payment. A high DTI ratio indicates you may be overextended in your debt obligations, while a low DTI ratio indicates you can afford the mortgage payment comfortably. 

While DTI is not the only factor in determining if a mortgage is affordable, lenders give a lot of weight to this factor to help gauge your chances of affording the payment. 

How does LTV ratio impact how much house you can afford?
One factor lenders pay attention to is loan-to-value (LTV) ratios. This number refers to the size of the loan in proportion to the home’s value. To calculate your LTV ratio, divide the projected mortgage amount by the home’s value. For example, if you have a $300,000 mortgage and the home is worth $350,000, the LTV ratio is 86% ($300,000 ÷ $350,000). 

Lenders place limits on LTV ratios to ensure they are not lending more than a home is worth. Depending on the LTV ratio of your loan, your lender may require you to pay private mortgage insurance, which decreases how much home you can buy with your mortgage payment. You can keep your LTV ratio down by increasing your down payment and, of course, limiting how much home you are purchasing. Some loan programs do allow you to borrow 100% of the home’s value.

Ready to buy a home or explore your loan options? Speak with a local Finance of America Mortgage Advisor to begin the preapproval process today. 

 

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