Mortgage Affordability Calculator

The two ratios bank underwriters check are:

• Front-end ratio (28%): Your monthly housing cost - principal, interest, property tax, homeowners insurance, and PMI - cannot exceed 28% of your gross monthly income.
• Back-end ratio (36%): Your total monthly debt - housing plus car loans, student loans, credit card minimums, child support - cannot exceed 36% of gross.

These ratios were standardized after the 2008 financial crisis as part of "qualified mortgage" rules. Lenders can technically approve up to 43-50% back-end DTI for special programs, but you should not borrow that much. People who buy at the top of their approval routinely report regret.

Principal and interest (the "P&I" your mortgage calculator shows) is usually 65-75% of your true monthly housing cost. The full picture includes:

• Property tax: National average ~1.2% of home value per year. New Jersey is over 2%; Hawaii is under 0.3%. Property tax is rolled into your monthly payment via escrow.
• Homeowners insurance: Typically 0.3-0.5% of home value per year. Higher in hurricane / wildfire / flood zones.
• PMI: Private mortgage insurance, required when you put less than 20% down. Usually 0.5-1.5% of the loan annually until you hit 20% equity.
• HOA fees: Common in condos and planned communities. Can range $50 to $2,000+/month. Not included in this calculator.
• Maintenance: Plan on 1-2% of home value per year over the long run for repairs and replacement.

This calculator includes P&I, tax, insurance, and PMI. If you have HOA fees, subtract them from "available for housing" before reading the max price.

Mortgage math is non-linear. At a 7% rate, a $400,000 loan costs $2,661/month in P&I. At 6%, the same loan costs $2,398 - a $263 difference. Conversely, if your budget supports $2,661/month, you could borrow $441,000 at 6% versus $400,000 at 7%.

Try this in the calculator: hold your income constant and slide the rate from 6% to 8%. The max purchase price typically swings by 15-20%. This is why people obsess over mortgage rates - small percentage changes compound into life-changing differences in what you can buy.

The "20% down" rule exists to avoid PMI. But that does not mean 20% is always the right call. Consider:

• 3-5% down (FHA, conventional 97): Lower barrier to ownership. PMI is real but disappears at 20% equity (refi or wait).
• 10-15% down: Smaller PMI premium, more cash on hand for emergencies and renovations.
• 20% down: No PMI, often gets better rate, less monthly payment. Requires real savings.
• 25%+ down: Rarely worth it unless you are paying cash anyway - that money usually earns more invested than the marginal rate savings.

Slide the down payment in the calculator to see exactly how PMI affects your monthly cost.

Banks only care about whether you will pay your mortgage. Your budget should also cover:

• 3-6 months of full living expenses in liquid savings
• 1-2% of home value annually for maintenance (set aside, do not just hope)
• Furniture, window treatments, appliances if moving from a rental ($5k-$20k easy)
• Inspection, appraisal, closing costs (2-5% of purchase price up front)
• Higher utility bills than your apartment

The biggest financial mistake first-time buyers make is treating the bank's max approval as their target. The second biggest is forgetting that the down payment is not the only up-front cost.