Home Affordability Calculator

One of the first steps toward buying a home of your own involves determining how much house you can afford. Arriving at an accurate amount can prove challenging because a wide range of financial factors influence buying power. Fortunately, a mortgage affordability calculator allows homebuyers to bring their numbers into one platform to arrive at an estimate.

What is a Mortgage Affordability Calculator?
A mortgage affordability calculator primarily deals with debt and income numbers, but the core goal is to provide an estimated mortgage amount that a potential borrower can afford.

A mortgage affordability calculator estimates the maximum loan amount a lender may approve based on the figures typed into the platform, but these numbers are only one piece of what lenders must review. The items that sway mortgage affordability and which mortgage programs you qualify for include gross household income, credit card debt, outstanding personal loans, property taxes, homeowners insurance, upkeep and maintenance expenses, and the amount of the monthly mortgage installment itself. Borrowers who prefer condominium or homeowner association lifestyles can add the fees that support community living in the yearly property tax tab.

The estimated down payment a homebuyer plans to put forward also plays a significant role. Reputable lenders consider down payments a commitment by the borrow that offsets their risk. Standard 10- to 20-percent down payments typically improve access to lower interest rates and loan approvals. Another factor that usually requires communication with a local lender involves the three-digit FICO score and credit history. Good scores and a consistent repayment history generally result in lower rates and favorable terms.

By using a mortgage affordability calculator, community members who want to achieve the American Dream of owning their own home can look at the numbers from different perspectives. For example, reducing credit card debt or paying off an automobile loan could improve how much house you can afford. In this way, a mortgage affordability calculator provides a borrowing threshold estimate based on current numbers and offers ways to raise a potential borrowing limit.
What is the 28%/36% Rule? Why does it matter?
The 28/36 rule is another approach used to arrive at a reasonable mortgage affordability estimate. Based on the rule, a family spends no more than 28 percent of their total gross income on household-related expenses. This includes the mortgage, taxes, insurance, fees, as well as routine maintenance and upkeep. The 36 percent side of the equation involves total outstanding debt. Things such as credit card debt, automobile loans, and other debt — including the mortgage — should remain at or below 36 percent of the total household income.

28/36 rule example:

Assume monthly income is $5,000, housing costs are $1,000, and outstanding debt is $1,400 ($1,000 mortgage, $400 car loan).

28% Portion:

Estimate Housing Cost/Monthly Income * 100% = (number should be less than 28%)
1000/5000*100= 20% (Success! This number is below 28%.)
36% Portion:
Total Debt/Total Income * 100% = (number should be less than 36%)
1400/5000*100=28% (Success! This number is below 36%.)

Lenders typically use the 28/36 rule as a way to evaluate a potential borrower’s financial status and ability to consistently make the monthly mortgage installments. Debt loads that exceed the 28/36 rule often place a high economic strain on working families. That, in turn, makes loan approval more challenging because the applicant is considered at heightened risk of missing payments or default.

Local lenders normally employ the 28/36 as a general rule, among other factors. But the heart of such metrics involves understanding a mortgage applicant’s debt-to-income ratio in the context of the person’s ability to fulfill their loan obligations.
How Does Your Debt-To-Income (DTI) Ratio Impact Home Affordability?
Mortgage underwriters review an applicant’s debt-to-income ratio by dividing the monthly debt obligations against pre-tax monthly income. The debts that are factored into this mortgage analysis tool include personal loans, credit cards, auto loans, and others. They generally do not include necessary and personal expenditures such as groceries, utilities, healthcare, or fuel and automobile maintenance. And unless items such as family vacations and weddings land on credit cards or someone takes out a short-term loan to cover the cost, lifestyle spending is also exempt.

Someone’s DTI remains a driving factor when securing the lowest possible mortgage interest rate and most favorable terms. The 28/36 rule remains a standard metric for gaining home loan approval. But a borrower who can eliminate or consolidate debt into a reduced monthly installment puts themselves in a better financial position.

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They were great to work with! They made the process very straightforward. Communication was great so I always knew where we were in the process. Thanks so much!
 
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May 2022
Fantastic experience with the team here. From day one, they were on it. They offered a very competitive rate and terms. They really differentiated themselves with service. Great communication throughout, easy process to get them things. Absolutely ran circles around the large national bank I had been with for 30 years in all aspects. The best mortgage experience I’ve ever had bar none. I highly recommend them. Thanks Cindy, Michael, Sarah and Barbie. Job well done. Much success to you in the future.
 
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May 2022
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