1. What is Mortgage Affordability?

Mortgage affordability refers to the maximum home loan amount you can qualify for based on your income and current interest rates. Lenders typically use the 28% rule, which states your monthly mortgage payment shouldn't exceed 28% of your gross monthly income.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

Where:

• \( \text{Income} \) — Your annual gross income in dollars
• \( 0.28 \) — The 28% rule (standard lending guideline)
• \( \text{Monthly Interest Rate} \) — Annual rate divided by 12 months

Explanation: The formula calculates the maximum mortgage payment you can afford (28% of monthly income) and then determines what loan amount would result in that payment at the given interest rate.

3. Importance of Affordability Calculation

Details: Knowing your affordable mortgage amount helps you shop for homes within your budget and prevents overextending yourself financially. It's a crucial first step in the home-buying process.

4. Using the Calculator

Tips: Enter your gross annual income (before taxes) and current mortgage interest rate. For more accurate results, consider additional factors like property taxes, insurance, and other debts.

5. Frequently Asked Questions (FAQ)

Q1: Why use 28% as the guideline?
A: The 28% rule is a standard lending guideline that helps ensure borrowers don't become "house poor" by spending too much of their income on housing.

Q2: What other factors affect affordability?
A: Lenders also consider your credit score, existing debts (36% total debt-to-income ratio typically), down payment amount, and other financial obligations.

Q3: Should I borrow the maximum amount calculated?
A: Not necessarily. Consider your lifestyle, savings goals, and potential future expenses before committing to the maximum mortgage amount.

Q4: How does interest rate affect affordability?
A: Higher interest rates decrease affordability because more of your payment goes toward interest rather than principal, reducing the loan amount you can qualify for.

Q5: Does this include property taxes and insurance?
A: No, this calculates principal and interest only. For a complete picture, you'll need to factor in property taxes, homeowners insurance, and possibly PMI.