Home Buying Power Calculator

Max Home Price Formula:

\[ \text{Max Price} = \left(\text{Monthly Income} \times 0.28 - \text{Monthly Debt}\right) \times \frac{1 - (1 + r/12)^{-n \times 12}}{r/12} + \text{Down Payment} \]

Monthly Income:

$/month

Monthly Debt:

$/month

Interest Rate:

decimal

Loan Term:

years

Down Payment:

Max Home Price ($):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is a Home 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 homebuyers understand their purchasing power and set realistic budget expectations when shopping for a home.

2. How Does the Calculator Work?

The calculator uses the formula:

\[ \text{Max Price} = \left(\text{Monthly Income} \times 0.28 - \text{Monthly Debt}\right) \times \frac{1 - (1 + r/12)^{-n \times 12}}{r/12} + \text{Down Payment} \]

Where:

$ \text{Max Price} $ — Maximum affordable home price
$ \text{Monthly Income} $ — Your gross monthly income
$ \text{Monthly Debt} $ — Your monthly debt payments
$ r $ — Annual interest rate (as decimal)
$ n $ — Loan term in years
$ \text{Down Payment} $ — Cash available for down payment

Explanation: The calculator first determines your maximum monthly mortgage payment (28% of income minus debts), 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 payments, and helps in financial planning for homeownership.

4. Using the Calculator

Tips: Enter your 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: Why use 28% of income?
A: This is the standard "front-end" debt-to-income ratio many lenders use for housing expenses.

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

Q3: How does interest rate affect affordability?
A: Higher rates decrease purchasing power as more of your payment goes toward interest.

Q4: Should I include taxes and insurance?
A: The 28% rule typically includes principal, interest, taxes, and insurance (PITI).

Q5: Is this calculation guaranteed by lenders?
A: No, lenders consider additional factors like credit score and reserves. This is an estimate only.