Home Affordability Calculator
Calculate How Much House You Can Afford
Understanding your home buying budget prevents financial stress and helps you focus on properties within your range. This calculator uses your income, debts, and down payment to determine what you can realistically afford in Los Angeles. Here’s how to use it:
Enter your annual household income.
Include all sources of regular income like salary, bonuses, commissions, and rental income. Lenders want to see stable, documented income that continues for at least two years.
Enter your monthly debts.
Add up all recurring monthly payments including car loans, student loans, credit cards, personal loans, and any other debt obligations. Don't include utilities or groceries, just actual debt payments.
Enter your down payment amount.
How much cash do you have saved for your down payment? This directly impacts how much home you can afford. Larger down payments mean smaller loans and lower monthly payments.
Enter the interest rate.
Current mortgage rates fluctuate daily. Our calculator uses average rates, but you can adjust this based on quotes you've received from lenders or your expected rate based on credit score.
Enter your loan term.
Most buyers choose 30-year mortgages for lower monthly payments, though 15-year and 20-year options exist with higher payments but less total interest.
The calculator uses standard debt-to-income ratios that most lenders follow, giving you realistic expectations before you start shopping for homes in LA.
Understanding the Components of Your Housing Budget
Lenders evaluate several factors when determining how much you can borrow. Here’s what goes into your home affordability calculation:
Gross Monthly Income
Your total pre-tax income divided by 12 months. This includes salary, bonuses, commissions, alimony, child support, and investment income. Lenders verify income through pay stubs, tax returns, and W-2 forms.
Monthly Debt Payments
All recurring debt obligations including car payments, student loans, minimum credit card payments, personal loans, and child support. Lenders calculate your debt-to-income ratio (DTI) by dividing total monthly debts by gross monthly income.
Down Payment
Your upfront cash payment toward the home purchase. Down payments typically range from 3.5% (FHA loans) to 20% (conventional loans). Larger down payments reduce your loan amount and monthly payment, plus eliminate private mortgage insurance on conventional loans above 20%.
Interest Rate
The annual cost of borrowing money, expressed as a percentage. Your rate depends on credit score, loan type, down payment size, and market conditions. Even small rate differences significantly impact affordability. A 6% rate versus 7% rate can change your buying power by $50,000 or more.
Property Taxes
Los Angeles County charges approximately 1% of your home’s assessed value annually in property taxes. Higher-priced homes mean higher tax bills, which reduce how much house you can afford since taxes are included in your monthly housing payment.
Homeowners Insurance
Required coverage protecting your home from fire, theft, weather damage, and liability. Annual premiums in LA typically run $1,200 to $2,500 depending on location, home value, and coverage level. Lenders require proof of insurance before closing.
HOA Fees
If you’re buying a condo or home in a community with a homeowners association, monthly HOA fees reduce your buying power. These fees cover shared amenities, maintenance, and community services but count against your debt-to-income ratio.
Mortgage Insurance
If your down payment is less than 20% on a conventional loan, you’ll pay private mortgage insurance (PMI) ranging from 0.5% to 1% of the loan amount annually. FHA loans require mortgage insurance regardless of down payment size.
The Math Behind Home Affordability
Lenders use two key ratios to determine how much house you can afford. Understanding these calculations helps you know exactly where you stand before applying for a mortgage.
Let's say you earn $120,000 annually ($10,000 per month gross income) and have $500 in monthly debt payments (car loan and student loans). You have $60,000 saved for a down payment and current rates are 6.5%.
- Front-End Ratio: $10,000 × 0.28 = $2,800 maximum monthly housing cost
- Back-End Ratio: ($10,000 × 0.36) − $500 = $3,100 available for housing
- Your Limit: $2,800 (lower of the two ratios)
With a $2,800 monthly payment including taxes and insurance, you can afford approximately a $550,000 to $600,000 home with your $60,000 down payment. The exact amount depends on property taxes, insurance costs, and HOA fees in your target neighborhood.
The 28/36 Rule for Home Affordability
Mortgage lenders rely on debt-to-income (DTI) ratios to assess whether you can afford a home. The traditional standard is the 28/36 rule, though modern lending allows flexibility.
The Front-End Ratio (28%)
Your monthly housing costs should not exceed 28% of your gross monthly income. Housing costs include mortgage principal and interest, property taxes, homeowners insurance, HOA fees, and mortgage insurance.
The Back-End Ratio (36%)
Your total monthly debt payments, including housing costs plus all other debts, should not exceed 36% of your gross monthly income. This includes car payments, student loans, credit card minimum payments, personal loans, child support, and alimony.
Modern Lending Standards
Many lenders now accept debt-to-income ratios up to 43% for conventional loans and even 50% for FHA loans with strong compensating factors. These factors include excellent credit scores (740+), significant cash reserves (six months of payments), stable employment history, or substantial down payments (20%+).
Why DTI Matters
Lenders use DTI ratios to predict your ability to make monthly mortgage payments reliably. Lower DTI ratios indicate more breathing room in your budget, reducing default risk. Higher ratios suggest you're stretching financially, which increases lender risk.
Calculating Your DTI
Add up all monthly debt payments and divide by your gross monthly income, then multiply by 100. If you earn $8,000 per month and have $2,000 in debts (including proposed mortgage), your DTI is 25%, well within safe limits.