Home Affordability Calculator: What It Is And How To Use It

As a new homeowner, I can completely understand the sticker shock of shopping for a new home. The upfront cost of homeownership can seem daunting without breaking it down to a manageable monthly number. Although it can be tricky to break down the total cost of the home into a monthly number on your own, RocketHQ^SM is here to help.

With our new home affordability calculator, you will not have to wade into these unfamiliar waters without trusted assistance. The calculator allows you to easily play around with the numbers of a potential home purchase to determine what size home can fit into your budget and long-term savings goals.

Here are a few factors that will affect your ability to afford a home:

• The income you bring in each month will necessarily impact the amount that you can afford to pay for a monthly mortgage.
• Debt-to-income ratio. Your debt-to-income ratio (DTI) is something that all lenders will consider before finalizing your mortgage. Essentially, this is calculated by dividing your monthly debt by your monthly income. If you have a high DTI, then you may have trouble securing a large mortgage.
• A down payment. Although you may not need to put 20% down on your home purchase, you should expect to put some amount of money down to finalize your mortgage. A larger down payment can help you qualify for a larger loan amount.

A final factor that can affect your ability to buy a home is the area that you live in. If you live in a competitive housing market, then you may need to consider a larger mortgage in order to find a place to purchase.

The home affordability calculator is very easy to use. It will walk you through a few screens that will ask about your annual income, monthly debts, location, and available funds for a down payment. After that, you’ll find out how much you can afford to spend on a home within a few seconds.

You’ll see the breakdown of what you can afford to help you make a good decision about your home purchase. In the green, you’ll find home prices that you can comfortably afford. In the yellow and red, you’ll find home prices that would be a stretch to afford or are too far out of reach.

On the right of the page, you’ll see a convenient breakdown of a sample monthly budget that includes your new mortgage payment, current monthly debt, and the funds left over to use for other expenses. With this useful breakdown, you’ll be able to decide what size home purchase is in your best interest.

Don’t stop with a single calculation. Try out different numbers that would reflect different scenarios.

A few scenarios to try include:

• Decreasing your annual income to mitigate the impact of a period of unemployment.
• Decreasing your monthly debt estimate if you plan to pay off your debt before you buy a home.
• Increasing the amount of available funds for a down payment if you have your heart set on buying a bigger home.

As you play around with the numbers for other potential scenarios, you’ll see that so much can change with a few minor tweaks.