1. What is the Home Affordability Calculator?

This calculator estimates how much you can afford to spend on a home based on your income, existing debt obligations, and a selected debt factor that represents your risk tolerance.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

Where:

• \( Income \) — Your annual gross income
• \( Debt \) — Your annual debt payments
• \( Factor \) — Multiplier based on risk tolerance (1.5 for conservative, 1.2 for moderate, 1.0 for aggressive)

Explanation: The formula calculates your available funds for a mortgage payment after accounting for existing debt obligations multiplied by a safety factor.

3. Importance of Affordability Calculation

Details: Proper affordability calculation helps prevent over-leveraging and ensures you can comfortably make mortgage payments while maintaining other financial obligations.

4. Using the Calculator

Tips: Enter your annual income and debt payments in dollars. Select a debt factor based on your risk tolerance (conservative, moderate, or aggressive).

5. Frequently Asked Questions (FAQ)

Q1: What debt should I include?
A: Include all recurring debt payments - car loans, student loans, credit card minimums, personal loans, etc.

Q2: Which factor should I choose?
A: Conservative (1.5x) if you want more safety margin, Moderate (1.2x) for balanced approach, Aggressive (1.0x) if you expect income growth.

Q3: Does this include taxes and insurance?
A: No, this is a simplified calculation. Your actual mortgage payment will include principal, interest, taxes, and insurance (PITI).

Q4: What's a good affordability amount?
A: Typically, your total housing costs shouldn't exceed 28% of gross income, and total debt payments shouldn't exceed 36%.

Q5: Should I use gross or net income?
A: This calculator uses gross income, similar to how lenders evaluate your mortgage application.