Q1: How much home can I afford?
Lenders typically use the 28/36 rule: your monthly housing payment should not exceed 28% of gross monthly income, and total debt payments (including housing) should not exceed 36%. This calculator uses the 28% rule for housing costs to estimate maximum affordability.
Q2: What is the 28% rule for housing affordability?
The 28% rule states that your monthly housing payment (principal, interest, taxes, insurance) should not exceed 28% of your gross monthly income. This ensures you have enough income left for other expenses, savings, and emergencies. Some lenders may approve up to 31-33% in certain cases.
Q3: How does monthly debt affect home affordability?
Existing monthly debt payments (credit cards, car loans, student loans, etc.) reduce the amount available for housing. The calculator subtracts your monthly debt from the 28% housing allowance to determine how much you can actually afford for a mortgage payment.
Q4: What costs are not included in this calculation?
This calculator focuses on mortgage payment affordability. It doesn't include: property taxes, homeowners insurance, PMI (if down payment <20%), HOA fees, maintenance costs, utilities, or closing costs. These additional costs can significantly reduce what you can actually afford.
Q5: Should I use gross or net income?
Lenders use gross (before-tax) income for affordability calculations, which is what this calculator uses. However, for personal budgeting, consider using net (after-tax) income to get a more realistic picture of what you can comfortably afford based on your actual take-home pay.
Q6: How does the down payment affect affordability?
A larger down payment increases the maximum home price you can afford because it reduces the loan amount needed. However, you need to balance a larger down payment with maintaining emergency savings and other financial goals. The calculator factors in your down payment amount.