Mortgage Affordability Calculator
Forget traditional mortgage qualification rules-of-thumb like 28% or 36% of earned income. These rough guidelines don't accurately answer the "how much house can I afford" question because too many other financial variables are ignored.
Instead, use this mortgage affordability calculator to convert what you currently pay in rent (or could afford to pay in rent) into the equivalent mortgage payment. By using actual cash outflows (rent) and current interest rates you get a more realistic perspective on how much mortgage you can afford.
How Much House Can You Afford?
Are you thinking about buying a house and getting a mortgage?
If so, you’re probably hearing advice from friends, family, and co-workers about how much house you can afford.
The traditional rule of thumb is 26-38% of earned income depending on risk tolerance and other budget factors.
A more direct route to a more accurate answer is to use this Mortgage Affordability Calculator to show you the mortgage you can afford based on the rent payment you can afford to make.
In other words, instead of using rules-of-thumb percentages, the Mortgage Affordability Calculator converts rental costs into ownership costs thus keeping your housing budget constant.
Below are some additional tips to help you decide if you are truly ready to become a homeowner.
Signs That You Are Ready To Buy A House
The math of housing affordability is important, but consider the following questions affecting your home ownership decision before committing.
- Can you afford the monthly payments? Carefully evaluate your financial position. Put together a realistic budget detailing all your expenses so you know how much house you can really afford. Fortunately, it is not that hard because if you already know how much you can pay in rent then the Mortgage Affordability Calculator will convert that amount into monthly mortgage payments thus providing an estimated purchase price net of insurance and property tax costs. It’s simple and easy.
- Have you saved enough for the down payment? The down payment is the amount you pay up-front toward the purchase price that reduces the financed mortgage balance. Most lenders require you to make a down payment, which is usually up to 20% of the value of the house. It is a good idea to have more than the required down payment saved before buying your home to help cover closing costs, moving costs, and redecoration expenses after moving.
- Is your income reliable? Buying a house is a serious financial commitment so make sure your income source is stable. Are both you and your spouse working? Does your budget require both incomes or can you get by on just one if necessary? Take these factors into consideration when determining how much house you can afford.
- Do you have an emergency fund? Many experts recommend saving somewhere between three and nine months of expenses in an emergency fund before you buy a house.
- Is your credit score ready? When you apply for a mortgage, lenders will look at your debt-to-income ratio and credit score to decide your credit worthiness. You don’t need to have perfect credit when applying for a mortgage, but a decent credit score can help you obtain a lower interest rate and monthly payment.
In addition, there are other important, non-financial considerations to work through as well:
- Do you like the location?
- How long will you live in the house?
- Does the house have enough room to support a growing family?
Think through these issues as you’re working with the Mortgage Affordability Calculator to determine if the house you are considering is truly the right fit for your needs – both budget and personal.
How To Find An Acceptable Monthly Payment
If you’re not sure what to enter into the “rent payment you can afford” box, that’s okay. Use the Budget Calculator to determine a proper housing allowance based on your income.
Another alternative is to start and maintain a budget that takes into account all your expenses. A good software solution is You Need A Budget which you can buy here for a 10% discount (affiliate link).
The key is don’t make yourself “house poor” by committing too much of your budget to mortgage, taxes, and insurance. You need to leave enough money in your budget to fund retirement, the kids college, and have a little fun once in a while.
Life can be very difficult when you are strapped with mortgage payments greater than you can comfortably afford.
Besides overspending, another common mistake new homeowners make is buying before being fully prepared for the added responsibilities.
As a homeowner, you’ll always face ongoing responsibilities and repairs, especially if you buy an older home. You will want to improve your home to match your needs, and you’ll also have taxes and insurance to pay – none of which you’ll be used to as a renter.
Before you decide to buy a house, it is important to weigh your options. The Mortgage Affordability Calculator will help you find a real-world mortgage that you can afford.
Mortgage Affordability Calculator Terms & Definitions
- Mortgage – The charging of real property by a debtor to a creditor as security for a debt, on the condition that it shall be returned on payment of the debt within a certain period.
- Rent – A tenant’s regular payment to a landlord for the use of property or land.
- Mortgage Term – The agreed length of time the mortgage will be paid until it is paid in full.
- Interest Rate – The rate at which interest is paid by a borrower for the use of money that they borrow from a lender.
- Property Tax – A levy on property by government that the owner is required to pay.
- Insurance – A practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.
- Down Payment – An initial payment made when something is bought on credit.
- Credit Score – A number assigned to a person that indicates to lenders their capacity to repay a loan.
Related Mortgage Calculators:
- Mortgage Payment Calculator With Amortization Schedule: How much will my monthly mortgage payment be? Includes taxes, insurance, PMI, and printable amortization schedule for handy reference.
- Mortgage Payoff Calculator: How much extra payment should I make each month to pay off my mortgage by a specific date (and how much interest will I save)?
- Bi-Weekly Mortgage Calculator: How much interest will I save paying my mortgage biweekly instead of monthly? How much more can I save if add an extra payment?
- Mortgage Balance Calculator: What is my mortgage balance given the number of payments I’ve already made (or still need to make)?
- Mortgage Refinance Calculator: How long will it take to break-even on my refinancing costs and what will be my total interest savings?
- Interest Only Mortgage Calculator: How much lower will my payment be on an interest only mortgage compared to a conventional principal and interest mortgage?
- Second Mortgage Calculator – Consolidate Savings With Refinance: How much will I save consolidating my first and second mortgages into a new first mortgage?
- Rent vs. Buy Calculator: Should I rent or buy? What’s the better deal?
- ARM Mortgage Calculator: How does an adjustable rate mortgage (ARM) compare to a fixed rate mortgage over the life of the loan (as opposed to just the teaser payment)?
- Balloon Mortgage Calculator: How much will I owe (balloon) at the end of the payment period?