Mortgage Affordability Calculator: How Much House Can I Afford?

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Trying to calculate how much mortgage you can afford is a little bit of a double edged sword. There’s the amount you want to spend, the amount of money a bank will lend you, and of course, the actual amount you can safely afford.  Enter the Millennial Homeowner Mortgage Affordability Calculator.

This home Mortgage Affordability Calculator is unlike any other mortgages calculator you might find online. This calculator is designed to give you the amount you can safely afford once you have factored in all of your regular expenses. We created it with the consumer in mind, because we know buying a home is a huge financial decision.

How do Monthly Mortgage Calculators Work?

Before we go any further, you should know how the banks calculate the amount of home you can afford. That way, you can better understand why this calculator might produce a different mortgage number than your bank.

Banks base how much mortgage you can afford on your gross annual income. Your gross annual income is your income before taxes, retirement contributions, and social security get deducted. It’s the amount you make before health insurance or vision insurance or disability insurance comes out of your paycheck.

I don’t know about you, but my gross annual income is a lot different than my net annual income after all of that is taken out!

What Mortgage Can I Afford? This Calculator Tells You

So, why do banks base affordability off of gross monthly income? Banks started doing this to make it “easier” for consumers to apply for a loan. The reason is people are more likely to know their gross annual income than they are to know their exact take home pay.

People know in general that when they got their job, they agreed to a salary of $50,000 or $85,000 or more. It’s a more straightforward number than knowing every single paycheck deduction. They use gross monthly income and deduct credit cards, debt payments and monthly payments to loans to get a new debt to income ratio which is used to come up with their version of a mortgage affordability.

However, because the average person has so many expenses, especially if they have a family, it’s so important to understand your total monthly income and monthly costs. This is where the real banking information comes in and it’s something the banks don’t consider. Knowing these amounts is the key to not getting in over your head.  You won’t need to fill out a mortgage approval odds calculator. You will likely know, once you have a firm grasp of all of your expenses, whether or not a particular mortgage payment actually fits within your budget.

Remember, a home should be an exciting financial step. Ideally, you should be able to afford your monthly mortgage payment and expenses with some room to spare. It wouldn’t be very much to have a super nice house but not be able to afford to go on any trips or go out to eat! That’s why it’s so important to buy a home that you feel like you can truly afford, not the number a bank tells you that you can afford.


How is this Mortgage Affordability Calculator Different?

This home loan calculator is based on your take home income. (As stated, banks uses gross monthly income, which is the amount you make before taxes and deductions). This mortgage afford calculator also factors in all of your other expenses like housing, debt, and everything else.

If you want to dive deep into how much home you can safely afford, I strongly suggest you get our guide “How  Afford Your First Home” In it, we go into all the details and give you a worksheet to figure out your monthly mortgage payment.

Including answering the question “how much house can I afford?” That way you can calculate an affordable mortgage based on your real numbers and know how much of a mortgage you can qualify for.

This will take into account things like your property taxes, homeowners insurance, student loans, and other items that are overlooked in most calculators because those ones use a rule of thumb. This one gets into the details.

The reason for this is that many people don’t create a housing budget before they buy a house. They find out what they can afford, and sign on the dotted line of a 30 year mortgage. Then they realize that their monthly expenses are more than what they thought and need to make adjustments.


Why does this form have so many more boxes?

Typical Mortgage Affordability Calculators (aka what you see on most bank sites) base their calculations on how much income you make BEFORE taxes and other paycheck deductions. They also want to know your debts because the bank wants to make sure you can safely repay them. It’s also how they calculate your debt to income ratio.


What about my credit score?

Your credit score factors into your mortgage by helping you get a better rate on your mortgage. Simply put the higher your credit score the better rate you will get on your home loan and the easier it will be for you to get a mortgage.

You can check your credit score free here.


What is a Debt to Income Ratio?

A debt to income ratio is your monthly debt payments divided by your monthly gross income. In order to get a home loan, this number typically needs to be 43% or less.

But, that percentage doesn’t take other personal expenses into account. It doesn’t show that you spend $500 a month on private school for your kids. It’s not aware you have two aging parents who need help affording their nursing home expenses. It doesn’t know that you owe your uncle $4,000 from the time he helped pay for your college tuition or any other off the book loan payments.

All a debt to income ratio shows is your monthly debt payments divided by your monthly gross income. When you think about it, there’s still a lot more to consider financially when determining how much home you can really afford.

So, in actuality there might be a pretty large gap between what you can actually afford and what the bank is willing to lend you. Don’t be fooled. Use the calculator above to know how much you can safely afford before you take out a loan and start making mortgage payments.

Remember, if you are using the banks loan affordability calculator, you are being told what the bank will lend you, not how much you can afford with your own unique financial situation.


What do I do after I have figured out how much home I can safely afford?

Once you have used the calculator to figure out a safe amount that you can borrow, the next step would be to get pre-approved for a mortgage. This step is for those of you who are planning on buying a home soon. If you are just in the beginning stages of preparing for home ownership, then you can start to save up for your down payment before getting pre-approved.

Your down payment should ideally be 20% of the cost of your home in order to avoid being charged what’s called private mortgage insurance (an extra expense on top of your mortgage for those who don’t put 20% down.)

Ultimately, we hope this calculator has been beneficial to you as you embark on your home buying journey. It’s so important to buy a house that comfortably fits in your budget with room to spare. Let’s be honest, home ownership and home repairs can get expensive, and it’s nice to have some extra cash flow in your budget to handle those unexpected expenses when they pop up.

You can get pre-approved here. 


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