Home Affordability Calculator

Created by Tomasz Jedynak, PhD
Reviewed by Bogna Szyk and Jack Bowater
Last updated: Jul 30, 2022

If you are wondering the how much you can spend on a house, this home affordability calculator will provide you with all of the answers. Our smart tool can help you to answer the question: "How much home can I afford?" or "what house can I afford?". Another question you might ask is "how much mortgage can I qualify for?" If you are considering buying a new home, but you are not sure what price you can afford, this calculator is designed for you. No matter what your current financial situation is, our house affordability calculator will help you figure out what your future home could be. You can also use our tool as a simple mortgage affordability calculator. If you need to remodel your home, check out our home improvement loan calculator.

In this article, you will learn answers to questions such as:

  • How much home can you afford?
  • How to calculate the home affordability?
  • How to use our home affordability calculator?

...then keep reading this article!

If you have already found a home, and want to know what your monthly mortgage payments will be, try our mortgage calculator. If you want to find out if it is more profitable to rent or buy a house, check our rent or buy calculator. You may also be interested in calculating the size of the loan you need to take as a proportion of the price of the purchased property – the Loan to Value (LTV).

If you are visiting us from India, you can also check our home loan EMI calculator.

How much home can I afford?

When buying a home, one of the most crucial steps is setting the right budget. Hardly anybody pays for a home in cash. In fact, most of us must take a loan to finance the purchase. This raises a questions that bothers many people: "how much home can I afford?" or "what house can I afford?".

A general rule of a thumb says that borrower may get a mortgage when the total
household expenses are no more than 28% of their pre-tax income. Note that household expenses are typically referred to as PITI because they include the principal, interest, taxes, and insurance.

The same rule also states that the total debt of the borrower should be no more than 36% of their pre-tax income. Due to these two figures, this rule is known as the 28/36 rule. If you want to check how it works, try our 28/36 rule calculator.

Obviously, the 28/36 rule is only a rough approximation. Sometimes the lender may agree to exceed the thresholds set out in this rule, for example, if you have a very good credit score you may receive a higher maximum debt-to-income ratio.

However, you should remember that even though you may qualify for the given mortgage amount, it may not be suitable for you. Before taking such a serious commitment, you should carefully review your situation. It is always a good practice to discuss taking a mortgage with a financial advisor who will help you decide how much you can afford to borrow without stretching your personal budget.

How to use our home affordability calculator?

The usage of our house affordability calculator is very simple. All you need to do is fill out the appropriate fields and wait a second for the results.

In the simple mode, which is available by default, the calculator works as a mortgage affordability calculator. To perform the calculations, you have to complete only three fields:

  • Your maximum payment - the maximum amount you can pay each month towards repaying the mortgage (i.e., the money you can afford to spend on housing). It can be expressed on a yearly or monthly basis. Remember that it should be carefully estimated with the 28/36 rule described above.
  • Loan term - the period over which the mortgage is granted. Usually, it is a long period, often between twenty and thirty years.
  • Interest rate - the cost of the mortgage expressed in percentage points. Usually it is an annual interest rate.

After you input the last field, the home affordability calculator will immediately show you your results. The maximum loan is the maximum value of mortgage you can afford with the given monthly payment.

In advanced mode the calculator allows you to do more complicated calculations. In the additional information section you are asked to give information about:

  • Money you have - the amount of money you can use as a down payment. It's the money you have and are willing to spend on a house (note that there is usually a minimum down payment required by the lender).
  • Your monthly debt - the installments you need to pay every month on other loans (e.g., auto loan, personal loan, RV loan). You can also switch to yearly debt.
  • Homeowner insurance – the price of a standard homeowner policy that covers damages to the property. It can be provided either on a yearly or monthly basis.
  • Property tax - the tax you have to pay as a property owner. It can be provided either on a yearly or monthly basis.
  • Closing costs - the total upfront costs that are required when buying a house. This usually varies between 2 - 5% of the total transaction value.

This time the results section contains two values. The first one is the same as before - the maximum loan you can take. The second one - maximum home value - shows you the maximum value of real estate you can afford.

How to calculate your house affordability?

With our home affordability calculator, estimating how much home you can afford is a piece of cake, although you may wonder about the equations that this calculator uses to obtain the final result. In this section we briefly explain to you the ideas that govern our tool.

To estimate how much house you can afford, you need to know a few variables:

  • The money you have and are are willing to put down as a down payment.
  • Your current income and current debts – income determines your maximum creditworthiness and thus also the maximum amount of mortgage you can take. On the other hand, your current debts diminish your creditworthiness. The bigger your debt, the lower the maximum amount of loan you can take.
  • Additional household expenses – for example property taxes and home insurance (as a tenant you do not have to cover such costs).

You should also take into account additional factors, such as closing costs.
Once you have all of the necessary information, the next step is to compute the maximum amount of mortgage you will be allowed to take. You can do it with the following formula:

maximum_loan = ((1 - (1 + (interest_rate)) ^ (- loan_term)) * monthly_installment / (interest_rate / 12)

The monthly_installment here is the monthly cost of the mortgage. It cannot exceed your payment ability. To calculate its maximum value we use the following formula:

monthly_installment = maximum _payment - insurance - tax - current_debt

Note that all of the components of this equation (maximum_payment, insurance, and tax and current_debt) should be expressed on a monthly basis.

In the next step, we estimate the maximum_home_value. It can be presented in the following way:

Maximum_home_value = (maximum_loan + down_payment) / (1 + closing_costs)

maximum_loan here is the maximum mortgage value calculated in the first step. down_payment and closing_costs are explained in the previous section.

Further real estate calculators

Now that you know how to use the home affordability calculator, it is time to familiarize yourself with some of our other useful applications which can help you to make good choices regarding real estate:

  • If you're scratching your head while figuring out the profit from renting out an apartment, try our net effective rent calculator.
  • If you rent a flat and don't occupy a rented apartment for the entire month, the prorated rent calculator will surely come in handy.
  • You can also use the cap rate calculator to decide whether a property's price is justified or to determine the selling price of a property you own.
  • If you're a real estate agent, jump to the rental commission calculator to determine your fee.
Tomasz Jedynak, PhD
Loan specification
Maximum payment
per month
Loan term
Interest rate
Maximum loan
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