💡 What is a House Affordability Calculator?
Before house hunting, knowing your budget is the crucial first step. An Affordability Calculator simulates a lender's underwriting process based on your real financial situation to reverse-calculate the maximum home price and loan amount you can safely afford, preventing you from becoming "house poor".
📐 How do lenders evaluate your loan capacity? (The 28/36 Rule)
- Front-End Ratio: Lenders generally recommend that your housing-related expenses (mortgage payment, taxes) should not exceed 28% of your gross monthly income.
- Back-End Ratio: Your total monthly debt obligations (including the new mortgage, car loans, minimum credit card payments, etc.) should not exceed 36% of your gross monthly income.
- Reverse Calculation: This tool takes the lower limit from these two ratios as your maximum monthly payment, and applies the reverse amortization formula $$P = M \times \frac{(1+r)^n - 1}{r(1+r)^n}$$ to calculate the max loan, adding your down payment to find the final home price.