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Estimates for informational purposes only — not financial advice.
Estimates for informational purposes only — not financial advice.
Determining Your Home Affordability
A home affordability calculator is a tool that helps you estimate how much you can realistically afford to spend on a new home. It analyzes your income, monthly debts, and savings to provide a budget that aligns with your financial situation. By understanding your affordability, you can shop for a home with confidence and avoid stretching yourself too thin financially.
Term Definitions
Gross Income
Gross income is your total earnings before any deductions such as taxes, insurance premiums, or retirement contributions are taken out. Lenders use this figure to assess your overall financial capacity when you apply for a loan.
Total Monthly Debts
This figure represents the sum of all your regular monthly debt obligations, such as car payments, student loans, credit card bills, and other personal loans. It is a key component in calculating your debt-to-income (DTI) ratio.
Credit Score
A credit score is a number between 300-850 that depicts a consumer's creditworthiness. The higher the score, the better a borrower looks to potential lenders. It is based on credit history: number of open accounts, total levels of debt, and repayment history.
Loan Type
Conventional loans are not insured by the federal government, while FHA loans are. This often results in different down payment and credit score requirements.
Savings for Down Payment
This is the amount of money you have saved specifically for a down payment on a home. This will help determine the maximum purchase price you can afford.
Down Payment
A down payment is the amount of money you pay upfront when purchasing a home, and it is not part of the loan. It can be expressed as a fixed dollar amount or a percentage of the purchase price. A larger down payment can result in a lower interest rate and monthly payment, and may help you avoid private mortgage insurance (PMI).
Debt-to-Income (DTI)
Debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments. Lenders use DTI to determine your borrowing risk.
Interest Rate
The interest rate is the percentage of the principal that a lender charges for borrowing money. It is typically expressed as an annual rate. A lower interest rate will result in lower monthly payments and less total interest paid over the life of the loan.
Annual Home Insurance
Homeowners insurance is a policy that protects your property against damages from events like fire, theft, or storms. Lenders require this insurance to protect their investment. The cost is typically paid annually or escrowed into your monthly mortgage payment.
Monthly HOA Fees
Homeowners association (HOA) fees are monthly dues paid by homeowners in a condominium or planned community. These fees cover the maintenance of common areas and other shared amenities.
Property Tax
Property taxes are levied by local governments and are typically based on the assessed value of your home. These taxes fund public services like schools, police, and fire departments. They can be paid annually or escrowed as part of your monthly mortgage payment. You can input this as a dollar amount, a percentage of the purchase price, or as a mill rate.
Primary Residence
A primary residence is the main home you live in. Mortgage rates are often lower for primary residences than for investment properties or second homes.
Origination Fee (%)
An origination fee is an upfront fee charged by a lender to process a new loan application. It is typically a percentage of the total loan amount and is sometimes negotiable.
Closing Costs
Closing costs are fees associated with completing a real estate transaction. They typically range from 2% to 5% of the home's purchase price and can include appraisal fees, title insurance, attorney fees, and more. These costs are paid at closing, when the title of the property is transferred to the buyer.
Appraisal Fee
An appraisal fee pays for a professional appraiser to estimate the fair market value of a property. Lenders require an appraisal to ensure that the loan amount is not more than the value of the home.
Title Insurance
Title insurance is a policy that protects both lenders and buyers from financial loss due to defects in a property's title, such as outstanding liens or ownership disputes. It is a one-time fee paid at closing.
Other Fees
This category can include various miscellaneous fees required at closing, such as attorney fees, recording fees (for public records), or survey fees. It's a catch-all for costs not covered by other specific fields.