# Mortgage Loan Affordability Calculator

Navigating the complexities of home financing becomes simpler with this Mortgage Loan Affordability Calculator by BizGeld. With this free calculator, you will be able to know how much mortgage financing you could afford. Just put in the values and click “Calculate” to see both the total mortgage that could be available to you and the approximate monthly payment amount.

## Use This Mortgage Affordability Calculator

### Your Mortgage Loan Affordability Results:

Affordable Monthly Mortgage Payment:

Total Affordable Mortgage Amount:

## What approach is this home loan affordability calculator uses?

Total Monthly Expenses:

Instead of focusing solely on your debt like other calculators, this approach considers all your monthly expenses. You would estimate your monthly living costs (e.g., groceries, utilities, transportation, etc.) and subtract this from your net income to see how much is left for paying the mortgage loan.

This method provides a holistic view of your finances which helps in informing you how much you can afford to borrow for buying a home.

Here is the Mortgage Loan Affordability Formula:
Affordable Mortgage Payment = Net Monthly Income − Non-Housing Monthly Expenses − Other Housing Expenses

## Breakdown of this Monthly Expenses Approach.

### Net Monthly Income

Net Monthly Income,” often referred to as “take-home pay,” is the amount of money you receive each month after all deductions have been taken out of your gross income. It represents the actual funds available for your personal spending and saving.

Here’s a more detailed breakdown of the concept:

Gross Income: This is the total income before any deductions. For salaried employees, it’s the annual salary divided by 12 (for monthly calculations). For hourly workers, it’s the hourly wage multiplied by the average number of hours worked in a month. It can also include bonuses, commissions, overtime, and other forms of compensation.

Deductions: These are amounts taken out of the gross income. They can include:

=> Taxes: Including federal income tax, state income tax, local taxes, and Social Security and Medicare (FICA) taxes in the U.S.
=> Retirement Contributions: Such as 401(k) or 403(b) contributions in the U.S.
=> Health Insurance Premiums: If they are deducted from the paycheck.
=> Other Benefits: Such as life insurance, disability insurance, or flexible spending account contributions.
=> Union Dues: For workers who are members of a union.
=> Wage Garnishments: Amounts that might be withheld due to debts, child support, or other legal obligations.

Additional Sources of Income: Net monthly income might also include other sources of regular monthly income, such as:

=> Rental Income: If you rent out property.
=> Dividends and Interest: From investments.
=> Pensions or Social Security: For retirees.
=> Alimony or Child Support: If you receive these payments.

Net Monthly Income Formula:

Net Monthly Income = (Gross Income + Additional Sources of Income) − Deductions

When checking a mortgage loan affordability, the net monthly income is a crucial figure. It provides a realistic assessment of the funds available to you to cover all expenses, including housing costs. Using gross income can be misleading, as it doesn’t account for mandatory deductions and might overestimate the actual funds available for spending.

### Non-Housing Monthly Expenses

These would include groceries, utilities, transportation, entertainment, other loan payments, credit card payments, savings contributions, etc.

Here’s a breakdown of common non-housing monthly expenses:

1. Food & Groceries: This includes daily meals, snacks, beverages, and other groceries. Some families may also include dining out or ordering takeout in this category.

2. Utilities (if not considered a housing expense): This can encompass electricity, gas, water, sewage, and other utility services not directly billed with rent or mortgage.

3. Transportation: Expenses related to owning and operating a vehicle (fuel, maintenance, insurance, and loan or lease payments) or using public transportation (bus, train, subway fares).

4. Healthcare: Costs such as health insurance premiums (if not deducted from one’s paycheck), out-of-pocket medical expenses, medications, and any regular therapies or treatments.

5. Insurance: Besides health and car insurance, this can include life insurance, disability insurance, and other personal insurance premiums.

6. Debt Payments: Monthly payments towards credit card bills, student loans, personal loans, car loans (if not counted under transportation), and other outstanding debts.

7. Entertainment & Recreation: Costs associated with leisure activities, like movie tickets, concerts, gym memberships, hobbies, and vacations.

8. Communication: Monthly bills for phone, internet, cable TV, streaming services, and other communication services.

9. Clothing & Personal Care: Purchases of apparel, footwear, cosmetics, grooming products, haircuts, and other personal care services.

10. Childcare & Education: If one has children, expenses might include daycare, tuition, extracurricular activities, school supplies, and tutoring.

11. Savings & Investments: Regular contributions to savings accounts, retirement accounts (if not automatically deducted from one’s paycheck), investments, and other financial commitments.

12. Miscellaneous: Other recurring expenses that don’t fit into the above categories, such as donations, gifts, subscriptions, and memberships.

When considering mortgage affordability, it’s essential to account for these non-housing monthly expenses. If these expenses are high relative to one’s income, it might limit the amount they can comfortably allocate to housing without stretching their budget too thin.

On the other hand, if these expenses are relatively low, they might have more flexibility in their housing budget.

### Potential Housing Expenses

When considering a home purchase or rental, it’s essential to account for all potential housing expenses, not just the principal mortgage payment or rent.

These expenses can significantly impact the overall affordability of a housing situation. Here’s a more detailed breakdown:

Mortgage Payment or Rent:
=> Principal and Interest: For homeowners with a mortgage, this is the monthly payment made to repay the loan’s principal and the interest charged by the lender.
=> Rent: For renters, this is the monthly fee paid to the landlord or property manager.

Property Taxes:
Homeowners are required to pay taxes based on the assessed value of their property. The rate can vary widely depending on the location and local government policies.
In some mortgage arrangements, property taxes are included in the monthly mortgage payment and paid by the lender from an escrow account.

Homeowner’s (or Renter’s) Insurance:
=> Homeowner’s Insurance: Protects against potential damages to the property. Premiums can vary based on the home’s value, location, and the coverage level selected.
=> Renter’s Insurance: Covers the renter’s personal property inside the rental unit and provides liability coverage.

Private Mortgage Insurance (PMI):
For homeowners who make a down payment of less than 20%, they may be required to pay PMI. It protects the lender in case the borrower defaults on the loan.

Homeowner’s Association (HOA) Fees:
Some properties, especially in planned communities or condominium complexes, require monthly or annual fees. These fees cover the maintenance and amenities provided by the association.

Utilities:
Essential services like water, electricity, gas, sewage, and trash collection. Some properties might also have heating oil or other utilities.
For renters, some or all utilities might be included in the monthly rent.

Maintenance and Repairs:
Regular costs to maintain and repair a home. This could include lawn care, pest control, roof repairs, plumbing, electrical work, and appliance maintenance.
Renters might not directly incur these costs, as they are often the landlord’s responsibility, but it’s essential for homeowners to budget for them.

Other Potential Costs:
=> Internet and Cable:
Monthly costs for internet access, cable TV, or streaming services, if not counted as a non-housing expense.
=> Landscaping or Gardening: For homeowners with yards or gardens.
=> Security: Costs associated with home security systems or services.
=> Special Assessments: Occasionally, homeowners might face additional charges for community improvements or major repairs in condominium complexes.

Closing Costs (for new purchases):
These are one-time fees when purchasing a home, covering things like loan origination fees, title insurance, appraisal fees, and home inspections.

Moving Costs:
Expenses associated with moving into a new home, including hiring movers, renting a truck, or storage fees.

Potential Future Increases:
It’s wise to consider potential future increases in property taxes, insurance rates, and HOA fees, especially if planning to stay in the home long-term.

When evaluating the affordability of a home, it’s crucial to factor in all these potential housing expenses. They can significantly impact the monthly budget and determine whether a particular home is financially feasible.