How Much House Can I Afford?

Home Affordability Calculator

Answer:

How the Calculator Works:

  1. Inputs Needed:

    • Monthly Payment: The amount you are willing or able to pay monthly towards your mortgage.
      • Example: $1,150.00
    • Down Payment: The amount of money you plan to pay upfront for the home.
      • Example: $15,000.00
    • Mortgage Term: The duration of the loan in months or years.
      • Example: 25 years (300 months)
    • Interest Rate: The annual interest rate for the mortgage.
      • Example: 5.57%
    • Annual Taxes: The total property tax amount you expect to pay yearly.
      • Example: $4,200.00
    • Annual Insurance: The total property insurance amount you expect to pay yearly.
      • Example: $820.00

  2. Formulas and Calculations:

    • Convert Mortgage Term to Months: If the term is given in years, it is converted to months:

      Term (in months)=Term (in years)×12\text{Term (in months)} = \text{Term (in years)} \times 12
      • Example: 25 years × 12 = 300 months

    • Monthly Interest Rate: Convert the annual interest rate into a monthly rate:

      Monthly Rate=Interest Rate (%)12×100\text{Monthly Rate} = \frac{\text{Interest Rate (\%)}}{12 \times 100}
      • Example: 5.57% annual interest rate → Monthly Rate = 5.57 / (12 × 100) = 0.0046417

    • Monthly Taxes and Insurance: Calculate the monthly property tax and insurance payments:

      Monthly Tax=Annual Taxes12\text{Monthly Tax} = \frac{\text{Annual Taxes}}{12}Monthly Insurance=Annual Insurance12\text{Monthly Insurance} = \frac{\text{Annual Insurance}}{12}
      • Example:
        • Monthly Tax = 4,200 / 12 = $350.00
        • Monthly Insurance = 820 / 12 = $68.33

    • Monthly Principal + Interest: The monthly payment excluding taxes and insurance:

      Monthly Principal + Interest=Monthly Payment−Monthly Tax−Monthly Insurance\text{Monthly Principal + Interest} = \text{Monthly Payment} – \text{Monthly Tax} – \text{Monthly Insurance}
      • Example: $1,150.00 – $350.00 – $68.33 = $731.67

    • Calculate the Maximum Mortgage: Using the loan amortization formula:

      maxMortgage=Monthly Principal + Interest×((1+Monthly Rate)Term−1)Monthly Rate×(1+Monthly Rate)Term\text{maxMortgage} = \frac{\text{Monthly Principal + Interest} \times \left( (1 + \text{Monthly Rate})^\text{Term} – 1 \right)}{\text{Monthly Rate} \times (1 + \text{Monthly Rate})^\text{Term}}

      • Example:

        maxMortgage=731.67×((1+0.0046417)300−1)0.0046417×(1+0.0046417)300\text{maxMortgage} = \frac{731.67 \times ((1 + 0.0046417)^{300} – 1)}{0.0046417 \times (1 + 0.0046417)^{300}}

        Calculating step-by-step:

        • (1+0.0046417)300(1 + 0.0046417)^{300} is the compound factor over 300 months.
        • Subtract 1 and multiply by the monthly principal + interest.
        • Divide by the monthly rate multiplied by the compound factor.

        This yields a maxMortgage of approximately $118,340.

    • Calculate Home Price: The total value of the house you can afford, including the down payment:

      homePrice=maxMortgage+Down Payment\text{homePrice} = \text{maxMortgage} + \text{Down Payment}
      • Example: $118,340 + $15,000 = $133,340

  3. Output Table:

    The results are displayed in a table format, showing:

    • Home You Can Afford: This is the total home price you can afford.
      • Example: $133,340
    • Down Payment: The amount you pay upfront.
      • Example: -$15,000
    • Approximate Mortgage You Need: The mortgage you need after accounting for the down payment.
      • Example: $118,340
    • Monthly Principal + Interest: The amount of your monthly payment allocated to principal and interest.
      • Example: $731.67
    • Monthly Tax: The portion of your monthly payment that goes towards taxes.
      • Example: $350.00
    • Monthly Insurance: The portion of your monthly payment that goes towards insurance.
      • Example: $68.33
    • Total Monthly Payment: The total monthly payment including principal, interest, taxes, and insurance.
      • Example: $1,150.00

Example Calculation:

Suppose you input the following values:

  • Monthly payment: $1,150
  • Down payment: $15,000
  • Mortgage term: 25 years
  • Interest rate: 5.57%
  • Annual taxes: $4,200
  • Annual insurance: $820

Based on these values:

  1. The calculator determines a maximum mortgage of approximately $118,340.
  2. Adding the down payment gives a total home price of $133,340.

The results table breaks down the monthly payments and the loan amounts required.

See Also:
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