Home Affordability Calculator

This calculator estimates the most expensive home you could comfortably afford, based on your income, debts, and the conventional 28/36 lender rule. Fill in the fields and the results update as you type. There is no submit button.

1. Enter your gross annual income. Use combined household income before tax. This is the main figure that drives how much you can borrow.
2. Enter your monthly debt payments. Add up car loans, student loans, and the minimum payments on credit cards. These count against the 36 percent back-end limit.
3. Enter your down payment. This is the cash you can put towards the purchase. It raises your maximum home price dollar for dollar.
4. Enter the interest rate and loan term. A typical term is 30 years. The rate affects how large a loan a given monthly payment can support.
5. Set the property tax and insurance rates. These default to 1.1 percent and 0.5 percent of the home price per year. Adjust them to match your area for a sharper estimate.
6. Review your results. You will see your maximum home price, the loan that supports it, the estimated monthly payment broken into its parts, and which rule sets your budget.

The calculation follows the conventional 28/36 guideline used by many lenders, then solves for the home price that fits your budget once tax and insurance are included. Every figure can be reproduced by hand.

Step one: the housing budget. Your gross monthly income is your annual income divided by 12. The front-end limit is 28 percent of that monthly income. The back-end limit is 36 percent of monthly income minus your existing monthly debts. Your housing budget is the smaller of these two limits. For example, on 120,000 a year the gross monthly income is 10,000, the front-end limit is 2,800, and with 500 of monthly debts the back-end limit is 3,100. The smaller is 2,800, so the front-end rule binds.

Step two: split the budget between payment and escrow. The monthly payment has two parts: principal and interest on the loan, and the property tax plus insurance collected in escrow. Tax and insurance are charged as a yearly percentage of the home price, divided by 12 to get the monthly amount. Whatever is left of the housing budget after tax and insurance can go towards principal and interest.

Step three: turn the payment into a loan. The loan a payment can support is the standard amortization formula run in reverse. In words: the loan equals the monthly payment times one minus one plus the monthly rate raised to the power of minus the number of months, all divided by the monthly rate. The monthly rate is the annual rate divided by 12, and the number of months is the term in years times 12. When the interest rate is zero, the loan is simply the payment times the number of months.

Step four: resolve the circularity. Tax and insurance depend on the home price, but the price depends on the loan, which depends on the budget left after tax and insurance. The calculator handles this by repeating the calculation: it starts the price at your down payment, estimates tax and insurance, recomputes the loan and price, and loops until the price settles. The maximum home price is the final loan plus your down payment.

The headline figure is the maximum home price. It combines the loan your income can support with the down payment you have saved. If you want to reach a higher price, you can raise your income, reduce your monthly debts, or save a larger down payment. Each of those moves the number for a different reason.

The maximum loan shows how much you could borrow at the rate and term you entered. A higher interest rate shrinks this figure, because more of each monthly payment goes to interest and less is available to support principal. A longer term increases the loan you can support per dollar of payment, but it also increases the total interest you pay over the life of the loan.

The estimated monthly payment is broken into principal and interest, and property tax plus insurance. Seeing the split matters because tax and insurance can be a meaningful share of the payment, especially in high-tax areas. When a loan is taken, the total typically equals your housing budget, because the calculator works out the largest home that fully uses that budget.

The binding rule tells you whether your budget is limited by the front-end rule or the back-end rule. If the front-end rule binds, your income is the constraint, and paying down debt will not raise your budget. If the back-end rule binds, your existing debts are holding you back, and reducing them would let you afford more.

Remember that affording the maximum is not the same as being comfortable. The 28/36 rule is a conventional guideline, lenders apply their own standards, and your real costs include maintenance, utilities, and savings goals that this calculator does not model. Use the result as a realistic ceiling, then choose a number that leaves room in your monthly budget. This is a tool, not financial advice.