# Home Affordability Calculator

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## The Idea Behind The Calculator

Owning a house requires a lot of preparation. It would be best if you plan your finances right before committing yourself to a mortgage loan. Our home affordability calculator helps you determine how much you can afford to buy a house based on your gross income and by identifying your expenses.

## Take The Initial Step

The first and foremost thing to do before you buy a house is to find out how far you can go. This home affordability calculator assists you in determining that. You have to input your income, your Loan to Value ratio, downpayment you can afford to pay, and your other expenditures, for instance, loans, credit card monthly payments, etc. These factors ascertain how much you can afford to invest.

### Term Of Mortgage

This is the mortgage period you require to finish off your loan. You can choose a 10, 15, or a 30 year loan period. With a higher loan period, your monthly installments decrease. With this in mind, choose a mortgage period. You would enter this in months.

### Gross Annual Income

You key in your gross pay before tax deductions. This input gives an estimate to the calculator on how much is your salary, and it calculates accordingly.

### Expenses

You can input all your monthly expenses, including your credit card balance payments, car, student loans, and other debts in the corresponding fields. Our calculator gives you a budget based on which you can look for your homes.

### Downpayment

Downpayment is another vital parameter about which you have to think. It is essential to realize that many factors like your monthly installments, PMI, etc. are decided based on how much you are ready to pay upfront. So, how much ever you can afford to spend before closing, input the value in this calculator.

### Interest Rate

This is the annual interest rate that a lender or bank gives you. Various factors like your initial down payment, your repayment time, and your credit score decide the rates a bank or lender would offer you.

### Home Owners Insurance And Property Taxes

Based on the type of home you plan to buy and your location, this varies. Townhomes and Condos have HOAs every month, and single-family homes have insurance, but no matter what kind of property you buy, you have to pay property taxes. You make these payments every month, as part of your monthly EMIs.

### Private Mortgage Insurance

If your loan to value ratio is less than 20%, you have to pay a PMI; again, this is included in your monthly mortgage payment.

## How To Calculate Using The Home Affordability Calculator

Now, let’s find out how these various parameters decide how much you can afford to own a home, with multiple scenarios.

### With Higher Downpayment

If you are comfortable paying a lot upfront, you can look for big-budget houses. After you key in this parameter, the calculator lets you know how much you can afford.

For example, if Brian is ready to pay 20% as a downpayment for buying a home, with a monthly income of \$6000, he can afford up to \$250,000. Further, he is offered a rate of 4.5% for 30 years fixed. Most importantly, his monthly expenditures, including loans and credit card debts, are not more than \$1000.

This category is one of the essential factors to consider before buying a house. Let’s say you have saved up a lot to afford a decent place and are ready to pay the 20% downpayment, but what if you have a bunch of loans and debts to service? That will suck up your monthly expenses, and paying your monthly installments would be a real challenge.

To enumerate, Dan earns \$7500 per month and has saved 20% as a downpayment to purchase a house, with a 4% interest and 15-year loan period. But a chunk of his monthly earnings goes off in paying his credit card balances, auto loan, and personal loan. So even if he could afford a home of \$350,000, he will have a tough time paying off EMIs

For this reason, you must enter at least a ballpark estimate of your expenses in this calculator, so that it could give your affordable price to buy a house.

## A Few Points To Remember Before You Invest

A credit score reflects how good you are with your finances. Maintaining a good credit score is a prerequisite for every loan you apply. Lenders can see how good you are at repaying your loans. Therefore, never be a defaulter and pay back your debts well in advance.

Above all, you get the benefit of obtaining better rates if you maintain a good score.

### Mortgage Preapproval

Before you even start house hunting, you must be preapproved by a lender. Most realtors insist on this. This approval emphasizes that you are a serious buyer and gives you an upper hand while you make an offer. Also, you get a practical insight into how much you can afford.

### Start Saving

Want to own a house pretty soon? Start saving. Cut down unnecessary expenses, plan a monthly budget, and stick to it. You must be in a position to pay about 5-20% of the home value immediately during closing.

A point often overlooked is the loan to value ratio. Banks and lenders insist that you pay the private mortgage insurance (PMI) if you cannot make a downpayment of 20% or more.

### Always Have A Buffer

No matter how meticulously you plan your budget, you can never foresee what might happen in the future. To clarify, you might have fixed monthly debts and expenditures. But you could end up spending unnecessarily for a hospital emergency room, or any other unplanned expenses. So it’s wise to consider having some buffer cash on which you can always count. Enter the expenditures in this calculator after due consideration of this point.

## Conclusion

In short, this affordability calculator eases your work. You don’t have to rely on the clumsy excel sheets and do a lot of complicated math.

Additionally, remember all the factors discussed in this post, before you key in the various parameters. I believe this calculator would be the best thing you could discover online to find out how much you can afford to buy a house.

Don’t forget to check our other calculators here.