When you're thinking about buying a home, one consideration is how much you can afford. Our affordability calculator can help you determine the price range of the homes you should consider based on your down payment, interest rate, and the loan term. In the payment calculation you'll see the estimated breakdown of taxes and mortgage insurance too. For tips on how to use this affordability calculator, see the "how to" instructions below.
How to use our home affordability calculator
Default values appear to show you how the calculator works. To get the most benefit from this tool, update these default values with numbers that apply to you. Each time you update a field, the calculator will re-estimate how much you can afford. Let's discuss the two parts of the affordability calculator.
Basic calculator fields
Down payment
This is how much you can put down towards the purchase of a new home. The size of your down payment has a big impact on the price of the home you can afford. That's because your down payment affects your loan-to-value ratio, which lenders use to help determine how much money they might loan you. Read the content below regarding loan-to-value ratio in the "Advanced calculator fields" section.
Total monthly payment
This is the estimated amount you think you can pay each month towards your new home. Your monthly mortgage payment includes principal and interest as well as taxes, homeowners insurance, and mortgage insurance if your loan requires it. You can see a breakdown of the estimated monthly payment by clicking on the "i" icon of the calculator like the image shows you below.
Term (years)
The "term" of a loan is the number of years you have to pay back the loan. When a mortgage has a term of 30 years, it means you have 30 years to pay off the loan. The term of a mortgage can affect the size of your monthly mortgage payment and the total amount of money you might pay in interest over the life of the loan.
Interest rate
Interest rate is the cost of borrowing money, expressed as a percentage. The interest rate a lender might offer you depends on factors like your credit score, personal finances, and loan amount.
Advanced calculator fields
Loan-to-value ratio
Loan-to-value ratio (or "LTV") is a number lenders use to assess the risk of a mortgage and to determine how much money they might be willing to lend you. Loan-to-value ratio is calculated by dividing the mortgage amount by the appraised value of the property. For example, you make a down payment of $40,000 on a home that costs $200,000. That means you will need to borrow $160,000 to buy the house. To figure the LTV, take the $160,000 loan amount and divide it by the $200,000 home value and you get 0.80 or 80%.
LTV is important to this mortgage affordability calculator because many lenders have a maximum loan-to-value ratio they will accept, and this maximum may limit the total amount of money you might be able to borrow.
Property tax
This is determined by the local government and based on the value of the property and the land that you own. Many counties have information online about their property tax rates.
Homeowners insurance
Insurance is needed to protect the homeowner from any damage or liability from events that may occur on the property. Lenders require homeowners to have insurance in order to cover their investment in the property.
Glossary of mortgage calculator terms
Our calculator provides an estimate of how much you can afford to pay for a home. Here are quick explanations of some of the information presented in the calculator.
Breakdown
The breakdown shows you how much your loan amount will be compared to the amount of your down payment.
Payment
Our mortgage affordability calculator breaks down the total monthly payments you can expect with your new loan based on the information you input. Your monthly mortgage bill includes the amount of your principal and interest, payments for your property taxes and homeowners insurance, and any Private Mortgage Insurance ("PMI") that you might have to pay. People typically have to pay PMI when they put less than 20% toward the down payment on a conventional loan.
Amortization and amortization schedule
Amortization is the process of repaying a loan by making regular principal and interest payments. An amortization schedule shows the amount a borrower needs to pay in principal and interest each month to ensure the loan is repaid by the end of its term. Our mortgage affordability calculator shows you estimated payment schedules for your new loan based on the information you input. To see these estimated schedules, click "Amortization" on the slider then click the "SEE TABLE" button.
What does mortgage affordability mean?
When you are thinking about how much home you can afford, think about all the bills you need to pay in addition to your monthly mortgage payment. Look at any car payments, student loans or credit card debt you might have. Include in your monthly budget expenses for groceries, phone and utility bills, health care, and other home expenses. When you buy a house, you want to be able to afford everyday living expenses too!
The Consumer Financial Protection Bureau recommends your total home payment including principal, interest, taxes and insurance should be no more than 28% of your monthly income. For example, if you earn $4,000 a month in income, your house payment should be no more than $1,120.
Lenders also might look at your total monthly debt payments before they approve you for a mortgage. They might do this by calculating your debt-to-income ratio.
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