Home loan calculator
Last updated: March 2023
Buying a home is an exciting time, but understanding how much house you can afford can be challenging. This home loan calculator helps you to sort out how much can you afford to borrow to buy a home based on your monthly income, monthly payments and other debt you may have.
This calculator requires that you input your desired loan terms, yearly property taxes and yearly homeowners insurance that you expect to pay. It can then generate a range of payments for both aggressive and conservative underwriting scenarios. Keep in mind that the economy may have an impact on your lender’s terms as well.
How does the home loan calculator work?
To calculate how much you can afford to borrow on a house, lenders look at a few different factors of your overall financial health. According to NerdWallet those factors include:
- Household income
- Monthly debts (e.g., student loans, car loans, etc.)
- Down payment on the home
Before we get into the specifics, this calculator provides two estimates, one for aggressive underwriting guidelines and one that uses conservative guidelines. When the economy is strong, mortgage lenders will tend to lower their loan qualification standards. When the economy is weaker, these standards will typically rise.
The home loan calculator uses your household income and monthly debt obligations to calculate your debt-to-income (DTI) ratio. For example, if your monthly income was $3,000 and your debt obligations totaled $500 monthly, your DTI ratio would be 16%.
In general, your housing costs should amount to no more than 28% of your monthly pre-tax income. Your total debts should not amount to more than 36% of your pre-tax income. The calculator uses this rule to calculate what monthly mortgage payment you can likely afford to pay.
From there, the calculator uses your loan information to estimate the loan amount based on the term of the loan, the interest rate, your down payment, plus any other obligations like property tax and homeowners insurance.
Important factors to consider when using a home loan calculator
A home loan calculator helps give you an understanding of what is affordable for your current financial situation. That said, a mortgage is not the only financial obligation that comes with purchasing a new home. Here are other factors to consider:
- Closing costs (vary based on the home, location and other factors)
- Utilities at the new home (electricity, cable, internet and water)
- Moving-related expenses (movers, trucks, item storage movers insurance)
- You may discover that your new home needs repairs/updates
The best way to calculate your home loan details
Ultimately, this calculator is meant to help you get an estimate for what kind of loan you may be approved for. The specifics of a monthly payment or the amount of the loan can change depending on your specific situation. For a better understanding of you may be approved for, try getting prequalified from your chosen lender(s).
By going through actual lenders, you’ll be able to get an estimate based on the financial information you provide, as well as an independent credit check. Getting prequalified can also help you decide between a fixed or variable rate mortgage.
Home loan calculation FAQs
Lenders will typically get your FICO score, which ranges from 300 to 850. It’s generally based on your individual payment history, outstanding balances, length of credit history, new credit accounts and the types of credit accounts, according to USA.gov.
You can check your credit score from the three credit reporting agencies (Equifax, Experian and TransUnion) for free once a year on AnnualCreditReport.com.
Your debt-to-income ratio (DTI) is all of your monthly debt payments divided by your gross monthly income, according to the Consumer Financial Protection Bureau (CFPB). For example, if you make $2,000 a month and have $200 of monthly debt, the calculation would look like this:
200 ÷ 2000 = .1
So, your DTI would be 1%.
Homeowners insurance cost is based on a number of factors that include:
- The deductible you choose
- The value of your home and belongings
- Your insurance claim history
- Other variables, such as the age and location of the home
If you’re looking to find out how much your homeowners insurance will cost, many insurers can provide you with a home insurance quote online.