Lenders usually follow two rules of thumb when they decide how much you can borrow. The first says your housing cost should stay below about twenty-eight percent of your monthly income. The second says all your monthly debt, including housing, should stay below about thirty-six percent. This calculator applies both rules and uses the stricter one.
Enter your yearly income before tax, your monthly payments on other debts such as cars, cards and student loans, and the down payment you have saved. Add the interest rate and the loan term. For property tax, enter the yearly rate as a percentage of the home value. Add your yearly insurance and any monthly HOA fees.
The two limit boxes are already set to the common values, and you can change them if your lender uses different ones. After you press Calculate, you will see the highest home price that fits, the loan amount, the monthly cost split into its parts and which limit applied. Remember that this is a guide to what a lender may approve. What you feel comfortable paying every month may be lower, and that is a perfectly good reason to aim for a cheaper home.
Your monthly budget is the smaller of two numbers: monthly income x housing limit, and monthly income x total debt limit minus your other monthly debts.
The loan payment per dollar borrowed is k = r / (1 – (1 + r) raised to minus n). The housing cost is (price – down payment) x k + price x tax rate / 12 + insurance / 12 + HOA. Setting this equal to your budget and solving gives: price = (budget – insurance / 12 – HOA + down payment x k) / (k + tax rate / 12). The loan amount is the price minus the down payment.