Home Affordability Calculator

By Bill Lyons | Updated on August 19, 2024

Becoming a homeowner is a big step, and you must be financially prepared. Asking yourself, “How much house can I afford?” can help you determine whether you’ll qualify for a loan based on income, debt obligations, down payment, housing expenses, available funds, loan terms, and more. 

Use our home affordability calculator to help you determine your maximum home price, loan amount, and estimated closing costs.

How to Use the Home Affordability Calculator

Determining how much you can afford to borrow when securing a home loan can help you start the search for your dream home before applying for a loan. We can help you determine how much home you can afford based on your current financial situation. Follow these steps to assess your home affordability:

1. Check Your Loan Type

Our home affordability calculator works for personal and business property loans to help borrowers of all types determine how much they can afford to borrow. 

2. Enter Bank Statement & Other Income Information 

Your income is a significant factor in determining your ability to repay. Enter your bank statement income and share your gross annual income and down payment amount to determine your loan amount. Remember, the higher your down payment, the less you’ll need to borrow. Additionally, a down payment of 20% can help you avoid private mortgage insurance (PMI) that increases your monthly payments. 

3. Provide Monthly Debt Information

Your monthly debts are subtracted from your monthly income to determine how much cash you have on hand throughout the month. Debts included are:

• Credit cards
• Mortgages
• Auto loans
• Student loans
• Personal loans
• Child support and alimony
  

4. Indicate Monthly Housing Expenses

Monthly housing expenses include property tax, PMI, HOA fees, utilities, and homeowners insurance. Our home affordability calculator considers these monthly housing expenses, subtracting them from your total monthly income to determine the loan amount. 

5. Enter Available Fund Amounts

How much have you saved for purchasing a home? Entering your available funds saved for down payment, closing costs, and maximum principal and interest (PI) payments can help determine whether you can afford the loan and associated costs. 

6. Provide Funding Information

Tell us about the loan you want, including the term, interest rate, down payment, home price, estimated closing costs, and total loan amount. 

Factors That Impact Home Affordability

Several financial factors determine your home affordability. For example, prospective borrowers may have high incomes, but high debt amounts can affect their eligibility. The factors that impact home affordability the most include the following:

• Income: Income is a significant metric used to determine whether you can afford a home and how much you can borrow. 
• Debt: Your debts affect how much you can afford to borrow because they impact how much of your income you can use to pay back your mortgage. The higher your debts, the less money you have left to repay your loan. 
• Down payment: A higher down payment is associated with better loan terms and interest rates. Additionally, a 20% down payment can help you keep your monthly payments as low as possible because your lender won’t require private mortgage insurance. Many loans offer low or no down payment options, including the FHA loan, which allows you to secure a home loan for a primary residence with just 3.5% down. You may also qualify for a first-time home buyer grant to help cover your down payment and other costs. 
• Mortgage rates: Mortgage rates change daily, and even a small shift can impact your home affordability. Higher interest rates result in higher monthly payments, which means you’ll have less purchasing power. 
• Housing expenses: Homeowner’s insurance, HOA fees, FMI, and property taxes can affect your ability to repay a loan. The higher your monthly housing expenses, the less purchasing power you have. 
• Loan type: There are many different home loan types, and they often have different interest rates. For example, some non-QM loans may have higher interest rates than conventional mortgages, increasing how much the loan will cost you monthly and in the long term. 

PITI vs PI

In general, loans are repaid in two parts: 

• Principal: The money borrowed.
• Interest: The interest owed to the lender.

You’ll hear this referred to as PI. However, mortgage loans require other expenses, namely, homeowner’s insurance and property taxes. When these four costs are bundled into a single monthly payment, this is referred to as PITI (Principal, Interest, Taxes, Insurance).

To properly determine how much house you can afford, you must consider PITI, as budgeting for all four expenses will give you a more accurate estimate. This calculator takes these additional expenses into account.

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The 28/36% Rule

Your debt-to-income ratio is an important indicator of whether you can afford to pay back a loan by comparing how much you earn to your monthly debts. DTI requirements vary by lender, but generally, they want to see a DTI of 43% or lower. The ideal DTI is 36%, with 28% of the debt going toward the mortgage payment. 

In other words, lenders want to see 28% of your income spent on housing expenses and no more than 36% on total debts, including mortgage, credit card, and loan payments. This rule is often used to determine eligibility for a loan and can help borrowers determine if they can afford one. 

How to Improve Home Affordability

Calculating your home affordability doesn’t just tell you whether you can afford a loan; it can help you determine how much you may be eligible to borrow based on several financial factors. Follow these tips to improve home affordability If you want to increase your chances of getting approved for a loan or increase the loan amount.

• Provide a larger down payment: A larger down payment can help you get approved for a higher loan amount. Putting down at least 20% removes private mortgage insurance from your monthly payments, so lenders may increase loan amounts without insurance. In addition, a larger down payment may reduce your interest rate because it lowers the lender’s risk. 
• Improve Credit Score: A higher credit score can help you get better mortgage terms by reducing your interest rate and increasing home affordability. In addition, borrowers with higher credit scores carry less risk for the lender, so they may be willing to increase your loan amount. 
• Improve your debt-to-income ratio: If you have a high DTI, you’ll have a lower loan amount. Luckily, the opposite is true; If you have a lower DTI, you can get a higher loan amount. You can reduce your DTI by paying off your debts or reducing the amounts you owe before applying for a mortgage loan. 
• Consider other home areas: Location is one of the primary considerations for what to look for when buying a home. It may also affect loan amounts and your purchasing power. Cities often have higher costs of living, which means higher home prices. However, you can expand your home search to more affordable areas to help you purchase bigger homes for less money. 
• Consider downsizing: Do you need all that space? Consider downsizing to a smaller, less expensive home to get the most out of your mortgage. The less money your home costs, the less you’ll need to borrow, and the more likely you’ll be able to afford a loan. 

You can use our home affordability calculator to measure the impact of small changes. For example, you’ll notice increasing your down payment increases the total loan amount. 

Buying your first home? Read our tips for first-time home buyers to help you understand the process and how to get approved for a loan. 

Home Affordability FAQs

How much house can I afford?

How much house you can afford depends on several factors, including your income before taxes, monthly debts, down payment, loan term, and interest rate. In addition, every loan and lender is different, so it’s crucial to find the best loan for you and your unique financial situation. You can use our calculator to help estimate how much you can afford to borrow and the maximum home price based on these critical pieces of information. 

How does Griffin Funding’s mortgage affordability calculator work?

Griffin Funding’s mortgage affordability calculator is more comprehensive than basic calculators you can find online. For example, instead of considering only income, debts, and down payments, our calculator helps you determine your mortgage affordability based on additional expenses, such as property tax, PMI, and HOA fees. We also consider your closing costs and available funds to ensure you have the necessary information to make the right decision about buying a home. 

What are the upfront costs of buying a home?

Instead of paying a seller a lump sum, a loan enables you to purchase a home and pay monthly installments. However, there are various costs associated with a loan, including the following:

• Down payment: You must provide a down payment to secure most home loans. However, the minimum down payment requirement varies by lender and loan type. 
• Closing costs: After the loan is approved, you must pay several fees, including origination and service charges for processing the application, underwriting, appraisal, and administrative tasks. Additionally, you may have escrow payments, such as homeowners insurance, property taxes, and PMI. Escrow in mortgage lending is an account used to pay for insurance and taxes. 
• Earnest money: An earnest money deposit is paid to the seller after they accept your offer. These funds allow the seller to hold the property and allow you the necessary time to get loan approval. Once the deal is complete, your earnest money is applied to your down payment. 

Final Notes

Are you ready to become a homeowner? Griffin Funding’s home affordability calculator can help determine if now is the right time to purchase a home. As a nationwide mortgage lender, we offer a variety of loan programs for any type of borrower. Secure funding for your dream home by applying online today. 

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.