Ever wonder how mortgage banks determine what you can afford? With this calculator, we'll mimic what a mortgage banker does: analyze your income, debts, savings and estimated housing costs to determine how much you can safely afford to pay in total housing costs each month. From these figures, you'll learn the ballpark price you can afford to pay for a new home.
Mortgage lenders have two formulas for analyzing how much you can afford to pay in housing costs each month. Then, they take the more conservative, or lower estimate of the two.
The first formula is that your monthly housing costs, including mortgage principal, interest, property taxes, homeowner's insurance and private mortgage insurance, should equal no more than 28 percent of your gross monthly income.
The second one is that sum plus your minimum monthly payment on any long term debts should equal no more than 36 percent of your gross income.
Note: When you answer these questions, don't include any punctuation, including commas, dollar or percent signs.