How the Home Affordability Calculator works
This calculator estimates the most home you can likely afford by applying the debt-to-income (DTI) guideline that conventional mortgage lenders use, then solving backward through the standard loan amortization formula to find a home price.
The 28/36 rule
Lenders commonly cap your monthly housing payment (principal, interest, property taxes, homeowners insurance, and HOA dues — together called PITI) at 28% of your gross monthly income, known as the front-end ratio. They also cap your total monthly debt — housing plus car loans, student loans, credit cards, and other obligations — at 36% of gross monthly income, the back-end ratio. The calculator computes both limits and uses whichever is smaller, since that is the ratio that actually constrains you.
Solving for a home price
Once the maximum monthly housing payment is known, the calculator splits it between principal & interest and taxes/insurance so the two add up to that limit. It uses the standard mortgage payment formula in reverse — L = PMT × (1 − (1 + i)−n) / i, where L is the loan amount, i is the monthly interest rate, and n is the number of monthly payments — to size the loan amount, then adds your down payment to get the maximum home price.
Worked example
Take a $90,000 annual income, $500 in other monthly debts, a $40,000 down payment, a 6.5% interest rate, a 30-year loan, and 1.5% combined for taxes, insurance, and HOA. Gross monthly income is $7,500. The front-end limit is $7,500 × 28% = $2,100. The back-end limit is ($7,500 × 36%) − $500 = $2,200. The front-end ratio is smaller, so it governs: the maximum housing payment is $2,100 a month. Splitting that between principal & interest and taxes/insurance and solving for price yields a maximum home price in the low-$300,000s, with the exact figure depending on how the tax/insurance percentage interacts with the loan payment.
What moves the affordable price most
- Income and existing debt: a higher income raises both limits directly; every extra dollar of monthly debt payment reduces the back-end limit dollar-for-dollar.
- Interest rate: a higher rate means more of each payment goes to interest, so the same monthly budget supports a smaller loan.
- Loan term: stretching the loan from 15 to 30 years lowers the monthly principal & interest payment for a given loan amount, which raises the loan size (and price) that fits the budget — at the cost of more total interest paid over time.
- Down payment: money you put down is not financed, so it adds roughly dollar-for-dollar to the maximum home price on top of what the loan supports.
What this does not include
This is a standard DTI-based affordability estimate, not a loan approval. It does not account for your credit score, closing costs, mortgage insurance (PMI) on low down payments, loan-program-specific rules (FHA, VA, USDA), or a lender's specific underwriting overlays — all of which can move the number a real lender offers. Treat the result as a planning estimate and confirm your exact figure with a mortgage lender before house-hunting.