1. What is a House Buying Power Calculator?

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

Purpose: It helps potential homebuyers understand their purchasing power before starting their home search.

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 0.28 factor represents the 28% rule (housing expenses should not exceed 28% of gross income). The complex fraction calculates the loan amount based on the payment capacity.

3. Importance of Home Affordability Calculation

Details: Proper calculation prevents overextension, ensures comfortable mortgage payments, and helps with financial planning.

4. Using the Calculator

Tips: Enter your gross monthly income, monthly debt obligations, current mortgage rates, desired loan term, and available down payment.

5. Frequently Asked Questions (FAQ)

Q1: Why use 28% of income?
A: This is the standard "front-end" debt-to-income ratio recommended by lenders, though some may go higher.

Q2: What debts should I include?
A: Include all recurring monthly debts: car payments, student loans, credit card minimums, etc.

Q3: Should I include taxes and insurance?
A: The 28% rule typically includes PITI (principal, interest, taxes, insurance). This calculator focuses on principal and interest.

Q4: How does down payment affect the result?
A: Your down payment is added directly to the loan amount you qualify for to determine total purchasing power.

Q5: What's a typical interest rate?
A: Rates vary, but 6% (0.06) is a reasonable default. Check current rates for accuracy.