Home Affordability Calculator

Home affordability is calculated using three overlapping rules that lenders and financial planners use to determine how much house you can responsibly buy.

Rule 1, the 28/36 Rule: Max Housing Payment = Gross Monthly Income × 28% Max Total Debt = Gross Monthly Income × 36%

Your mortgage (principal + interest + taxes + insurance) should not exceed 28% of gross monthly income. All debt combined (mortgage + car + student loans + credit cards) should not exceed 36%.

Rule 2, Maximum Purchase Price: Max Home Price ≈ Annual Gross Income × 3 to 4 Conservative buyers use 3×. More aggressive financing allows up to 4–5× in low-rate environments.

Rule 3, the Monthly Payment Formula (amortization): Monthly Payment = P × [r(1+r)^n] / [(1+r)^n − 1] Where P = loan amount, r = monthly rate, n = months.

The 28% is PITI, not P&I, and that is where most estimates go wrong. Rule 1 above says the limit covers principal, interest, taxes and insurance. Plenty of affordability math quietly drops the taxes and insurance and hands the whole 28% to the loan payment, which overstates what you can buy by 15 to 20%. This calculator does not: it reserves a share of the budget for taxes and insurance before solving for the loan, using the rate you enter.

Worked example: Gross income: $90,000/year, so $7,500/month. Down payment $40,000, rate 6.8%, 30 years, no other debts, taxes and insurance at 1.5% of home value per year.

• Max housing payment (28%): $7,500 × 0.28 = $2,100/month
• Monthly rate: 6.8% ÷ 12 = 0.5667%. Payment factor on 360 months = 0.0065191
• Taxes and insurance take 1.5% ÷ 12 = 0.125% of home value each month
• Solving $2,100 = Loan × 0.0065191 + (Loan + $40,000) × 0.00125
• → Loan = ($2,100 − $50) ÷ 0.0077691 = $263,861

Max home price = $263,861 + $40,000 = $303,861. The monthly breakdown is $1,720.17 of principal and interest plus $379.83 of taxes and insurance, which is exactly the $2,100 budget.

Hand that same buyer the full $2,100 for principal and interest alone and the answer comes out near $362,000. That is the 15-to-20% overstatement, in one number, and it is why a pre-approval letter sometimes looks nothing like the payment you can actually live with.

What this calculator does NOT include, and you should:

• PMI (Private Mortgage Insurance), charged when the down payment is under 20%. Typically 0.5–1.5% of the loan per year, so $110 to $330 a month on a $264,000 loan. It comes straight out of the same 28% budget and drops the affordable price by tens of thousands.
• HOA (Homeowners Association) fees, if the home has them. Lenders count these in the ratio too.
• Property tax rates vary enormously. Roughly 0.3% in Hawaii, over 2% in New Jersey, Illinois and parts of Texas. The 1.5% default is a national middle that fits almost nobody exactly, so change it.

One more caution. The 28/36 rule is a lending limit, not a budget. It is calculated on gross income, before tax, before retirement contributions, before childcare. Approval for a number and comfort at that number are different things, and the gap is widest for higher earners.