Free online tool that helps you estimate how much you can afford to spend on a home based on your income, expenses, and other financial obligations.
Home affordability refers to the ability of a person or family to purchase and own a home without experiencing undue financial burden or stress. It involves balancing the cost of a home with a person or family's income, expenses, and financial obligations.
A home is considered affordable when the monthly mortgage payment, property taxes, and homeowners insurance do not exceed 28% of the borrower's gross monthly income. This is known as the "front-end ratio." Lenders also consider the borrower's "back-end ratio," which includes all of the borrower's monthly debt obligations in addition to the housing expenses. This includes things like car payments, credit card debt, and student loans.
The concept of home affordability is important because buying a home is one of the largest financial decisions that most people will make in their lives. If the mortgage payment is too high in relation to a person's income, it can lead to financial stress, missed payments, and even foreclosure. Therefore, it's essential to carefully consider all factors when determining the affordability of a home, including income, expenses, debts, and credit score.