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Mortgage Affordability Formula:
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The Mortgage Calculator By Income estimates the maximum mortgage amount you can afford based on your monthly income and the standard 28% housing expense ratio. This helps determine your home buying budget while maintaining financial stability.
The calculator uses the mortgage affordability formula:
Where:
Explanation: The formula calculates the maximum mortgage payment you can afford (28% of income) and converts it to a total mortgage amount based on the interest rate.
Details: Calculating mortgage affordability is crucial for financial planning, ensuring you don't overextend yourself and can comfortably manage monthly payments while covering other living expenses.
Tips: Enter your gross monthly income and the monthly interest rate as a decimal (e.g., 0.004 for 0.4%). All values must be positive numbers.
Q1: Why use 28% as the housing ratio?
A: The 28% rule is a standard guideline used by lenders to ensure borrowers don't become house-poor and can manage other financial obligations.
Q2: What other factors affect mortgage affordability?
A: Credit score, debt-to-income ratio, down payment amount, property taxes, insurance, and other debts also influence how much mortgage you can qualify for.
Q3: Should I use gross or net income?
A: Lenders typically use gross income, but for personal budgeting, net income might give you a more realistic picture of affordability.
Q4: What if my monthly rate changes?
A: This calculator assumes a fixed rate. For adjustable-rate mortgages, you should calculate based on the highest potential rate to ensure affordability.
Q5: Are there other housing expense ratios?
A: Some lenders use 36% for total debt-to-income ratio, including all monthly debt payments, not just housing expenses.