1. What is Mortgage Affordability?

Mortgage affordability determines how much home you can afford based on your income, debt-to-income ratio, and current interest rates. It helps potential homebuyers understand their purchasing power in the housing market.

2. How Does the Calculator Work?

The calculator uses the mortgage affordability formula:

Where:

• \( Income \) — Annual or monthly income in USD
• \( Ratio \) — Debt-to-income ratio (typically 0.28-0.36)
• \( Rate \) — Annual interest rate as decimal (e.g., 0.06 for 6%)

Explanation: The equation calculates the maximum mortgage amount you can afford based on what portion of your income can go toward housing costs at current interest rates.

3. Importance of Affordability Calculation

Details: Calculating mortgage affordability helps prevent overborrowing, ensures comfortable monthly payments, and helps buyers focus their home search on appropriate price ranges.

4. Using the Calculator

Tips: Enter income in USD, ratio as decimal (typically 0.28 for conservative estimate), and current mortgage rate as decimal. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good debt-to-income ratio?
A: Most lenders recommend keeping housing costs below 28% of gross income (0.28 ratio) and total debt below 36%.

Q2: Should I use gross or net income?
A: Lenders typically use gross income, but for personal budgeting, net income may give a more realistic picture.

Q3: How does the interest rate affect affordability?
A: Higher rates decrease affordability (you qualify for a smaller loan), while lower rates increase it.

Q4: What other factors affect home affordability?
A: Down payment amount, property taxes, insurance, other debts, and credit score all influence what you can afford.

Q5: Is this calculation for monthly or annual amounts?
A: The calculation works for either, as long as all values use the same time period (all monthly or all annual figures).