1. What is Home Loan Affordability?

Home loan affordability is the maximum amount you can borrow based on your income and debt-to-income ratio (DTI). It helps determine how much house you can comfortably afford without overextending your finances.

2. How Does the Calculator Work?

The calculator uses the simple affordability formula:

Where:

• \( Income \) — Your annual or monthly income in dollars
• \( DTI \) — Debt-to-Income ratio (expressed as decimal, e.g., 0.36 for 36%)

Explanation: The formula multiplies your income by your maximum allowable DTI ratio to determine how much you can afford to spend on housing payments.

3. Importance of Affordability Calculation

Details: Calculating home loan affordability helps prevent overborrowing, ensures manageable monthly payments, and improves loan approval chances by staying within lender guidelines.

4. Using the Calculator

Tips: Enter your income in dollars (annual or monthly, but be consistent). Enter DTI as a decimal (e.g., 0.36 for 36%). Most lenders recommend keeping DTI below 0.36-0.43.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses. Some loans allow up to 43% DTI.

Q2: Should I use gross or net income?
A: Lenders typically use gross income, but using net income gives a more realistic picture of what you can actually afford.

Q3: What other factors affect home affordability?
A: Credit score, down payment amount, interest rates, property taxes, insurance, and other debts all impact what you can truly afford.

Q4: How often should I recalculate affordability?
A: Recalculate whenever your income changes, interest rates change significantly, or you take on/pay off other debts.

Q5: Is this the same as pre-approval amount?
A: No, this is just an estimate. Actual pre-approval amounts may differ based on credit history and lender criteria.