Home Affordability by Salary Calculator

The home affordability by salary calculator converts your annual income into a maximum home price using the same debt-to-income guidelines that mortgage lenders apply during the approval process. The calculation begins with your annual salary, which is divided by 12 to determine your gross monthly income. Lenders typically use two DTI thresholds: the front-end ratio (housing costs only, usually capped at 28 percent of gross income) and the back-end ratio (all debts including housing, usually capped at 36 percent). The calculator applies the more conservative of these two limits. It first computes 28 percent of your gross monthly income as the maximum housing payment. Then it computes 36 percent minus your existing monthly debts. The lower of these two figures becomes your maximum monthly housing budget. From that housing budget, the calculator subtracts estimated monthly property taxes and homeowners insurance to determine the maximum available for principal and interest. Using the standard amortization formula in reverse with your specified interest rate and loan term, it solves for the maximum loan amount that produces a P&I payment within your budget. If your down payment is less than 20 percent, the calculator also deducts estimated PMI from the housing budget before solving for the loan amount, which slightly reduces your buying power. Finally, the calculator adds your down payment to the maximum loan amount. The down payment is calculated as a percentage of the final home price, requiring an iterative calculation since the home price determines the down payment amount, which in turn affects the loan amount. The result is the maximum purchase price where your total housing costs stay within the recommended DTI limits. The calculator presents three price tiers: a conservative estimate at 25 percent DTI, a moderate estimate at 28 percent, and a stretch estimate at 36 percent, so you can see the full range of what lenders might approve.