Mortgage Affordability Calculator - Determine Your Maximum Home Price Based on Monthly Budget

How to Determine Mortgage Affordability?

To determine mortgage affordability, you generally follow these steps:

1. Set Your Monthly Budget: Decide how much you can comfortably pay each month for all housing costs, including mortgage, property taxes, insurance, and maintenance.
2. Estimate Additional Costs: Besides the mortgage principal and interest, factor in property taxes, homeowners insurance, private mortgage insurance (if applicable), and upkeep costs. These usually add around 1.5% to 3% of the home’s value annually.
3. Calculate Maximum Mortgage Payment: Subtract the estimated monthly extra costs from your total monthly housing budget. The remainder is what you can spend on your mortgage payment (principal + interest).
4. Use a mortgage calculator or Formula: With your mortgage payment budget, loan term (usually 15 or 30 years), and interest rate, calculate the maximum loan amount you can afford.
5. Add Down Payment: Remember, the price of a home equals the loan amount plus your down payment.

Example:

• Monthly budget: $1800
• Estimated extra costs: $600/month
• Maximum mortgage payment: $1200/month
• At 6% interest over 30 years, $1200/month might support a loan of about $200,000
• With 20% down, home price = $200,000 ÷ 0.8 = $250,000

By following this method, you get a clear, realistic view of what home price fits your budget. For precise qualification, consult with lenders or use the calculator on this page.

If My Monthly Housing Budget Is $1,500, How Much House Can I Afford?

If you're looking at a 30-year loan with 20% down, a fixed rate of 6.5%, property tax at 1.5% per year, home insurance at 0.5% per year, and maintenance costs at 1.5% per year, then you can afford a house worth about $188,288.

At that price, your monthly mortgage payment would be $952.09, property tax would be $235.36, home insurance $78.45, and maintenance costs $235.36.

FAQ

Should I Include Taxes and Insurance in My Budget Calculation?

Yes, it's recommended to include all housing-related expenses in your budget to get a realistic picture of your total monthly housing costs.

How Accurate Is This Calculator?

This calculator provides estimates based on the information you provide. Actual loan terms and costs may vary based on your credit score, lender requirements, and market conditions.

What if I Have Existing Debt?

Consider your debt-to-income ratio when determining your housing budget. Lenders typically prefer a total debt-to-income ratio below 36-43%.

Reference

Government Resources

• Consumer Financial Protection Bureau (CFPB): Your home loan toolkit - Comprehensive guide to the home buying process
• Federal Housing Administration (FHA): FHA Home Loans - Information about government-backed mortgages
• U.S. Department of Housing and Urban Development (HUD): Buying a Home - Government guidance on home purchasing
• Federal Reserve: A Consumer's Guide to Mortgage Lock-ins - Understanding mortgage terms and conditions
• Internal Revenue Service (IRS): Deductible Real Estate Taxes - Tax implications of homeownership

Professional Guidance

• Find HUD-Approved Housing Counselors: Free Housing Counseling - Locate certified housing counselors in your area
• National Association of Realtors: Home Buyers Guide - Professional real estate guidance
• Mortgage Bankers Association: Consumer Resources - Industry insights and guidance

Financial Education

• MyMoney.gov: Federal Financial Literacy and Education Commission - Government financial education resources
• CFPB Financial Well-being: Financial Well-being Resources - Tools for financial planning