1. What is a Home Affordability Calculator?

Definition: This calculator estimates the maximum home price you can afford based on your income, debts, loan terms, and down payment.

Purpose: It helps potential homebuyers understand their purchasing power and budget realistically for a home purchase.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( P \) — Maximum home price ($)
• \( I \) — Monthly income ($/month)
• \( D \) — Monthly debt payments ($/month)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Loan term (years)
• \( DP \) — Down payment ($)

Explanation: The calculator first determines your maximum monthly mortgage payment using the 28% rule, then calculates the loan amount this payment can support, and finally adds your down payment.

3. Importance of Home Affordability Calculation

Details: Proper calculation prevents overextension, ensures comfortable monthly payments, and helps in financial planning for homeownership.

4. Using the Calculator

Tips: Enter your gross monthly income, monthly debt payments, expected interest rate, desired loan term, and available down payment. All values must be ≥ 0 except income and rate which must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What is the 28% rule?
A: A guideline suggesting your housing expenses shouldn't exceed 28% of your gross monthly income.

Q2: Should I include all debts?
A: Yes, include all monthly debt obligations (car loans, student loans, credit cards, etc.).

Q3: What's a typical interest rate?
A: Rates vary, but 6% (0.06) is a reasonable default. Check current mortgage rates for accuracy.

Q4: How does down payment affect affordability?
A: Larger down payments increase your purchasing power by reducing the loan amount needed.

Q5: Does this include taxes and insurance?
A: No, this calculates principal and interest only. Consider adding 1-2% of home value annually for these.