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

3-minute readSeptember 21, 2020

A new home is a major purchase for anyone. Wherever you stand in your financial journey, the decision to buy a home is an exciting step. However, the sheer size of the purchase will allow it to have a big impact on your life. With that, it’s important to decide exactly how much home you can afford. Luckily, that is easy to do with our home affordability calculator.

We will take a closer look at the tool and how it can help you narrow your home search to a comfortable price range.

How Much Home Can You Afford?

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, RocketHQSM 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.

How It Works

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.

How To Get The Most Out Of The Home Affordability Calculator

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.

What To Do Next

If you’re unhappy with the amount that you can comfortably spend on a home, then consider making a change. After you’ve used the calculator to determine what you would need to do to make your dream home buying budget a reality, then take action to reach those goals. That might include paying down debt, saving for a larger down payment, or finding ways to increase your annual income.

If you’re happy with the results, then it might be time to start home shopping. Before you take the plunge, take a close look at your credit score. You can check yours for free at RocketHQ. Plus, you can take some time to learn more about the home buying process with our free resources.

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