Maximum mortgage calculator: Find out how much house you can afford
Updated: April 08, 2024
Embarking on the journey to homeownership begins with understanding your financial landscape. Before you dive into the market or commit to any mortgage terms, it's essential to grasp what you're eligible to borrow and what you should borrow.
This distinction is critical to ensure you stay within a comfortable financial boundary while searching for your dream home.
Enter the "maximum mortgage calculator," a pivotal tool to bridge this gap. By inputting your income, interest rates, and other financial obligations, this calculator provides a clear picture of the highest mortgage amount you can afford, aligning your home-buying aspirations with your economic reality.
What is a maximum mortgage calculator?
A maximum home loan calculator is a crucial financial tool for individuals seeking to purchase a property. Homebuyers can accurately estimate the maximum amount of money they can borrow from a lender based on their income, credit score, down payment, and interest rates. With an estimate of the maximum mortgage amount you can afford, you can determine the monthly costs associated with it and then make informed financial decisions when purchasing a home.
How to use this calculator
This calculator allows you to plug in the significant variables that impact how much you can afford to borrow: the size of the loan, how much you have for a down payment, the loan’s interest rate and its term in years. Start by adding the figures you have for those factors.
A second drop-down menu will allow you to input your other monthly liabilities or debts. It’s important to be accurate with these figures because they have a major influence on how much you can actually afford.
The third drop-down gives you space to account for your other monthly expenses, including taxes, insurance or regular fees.
Once you’ve filled in all the numbers, the calculator will show you how much income you’ll need to afford the size of the loan you’re looking at and how much your total monthly payment (including your principal, interest, taxes and insurance) would be.
However, a few other factors will also help determine whether you'll be able to land the type of home and mortgage amount you want.
Loan limits
Most mortgages in the U.S. are called "conforming" loans and have limits that can restrict your ability to buy a property with a higher purchase price.
The lenders will eventually sell the loans to government-sponsored mortgage giants Fannie Mae and Freddie Mac, so the mortgages must conform to — that is, meet — caps set by the Federal Housing Finance Agency, which regulates the two companies.
In 2022, the conforming loan limit for a single-family home in most parts of the country was $647,200. In America's costliest counties, the ceiling is $970,800.In 2024, the conforming loan limits set by the Federal Housing Finance Agency (FHFA) are as follows:
- In most parts of the United States, the conforming loan limit for a single-family home is $766,550.
- In the nation's costliest counties, the loan ceiling for a single-family home has been raised to $1,149,825.
These limits dictate the maximum loan amount that can be secured under a conforming loan, potentially affecting your ability to buy a property with a higher purchase price without resorting to a “nonconforming” loan, which typically comes with different lending standards and interest rates.
Many "nonconforming" mortgages are called jumbo loans and have no limits. But others, including FHA loans backed by the Federal Housing Administration, do have caps. Down payment
One way to make a more expensive home and a larger loan more affordable is by increasing your down payment on the house.
Not only will that lower your principal and the interest you’ll pay on the principal, but if you put down more than 20%, you also can avoid having to pay private mortgage insurance or PMI.
PMI can add a few hundred dollars a month to your mortgage payment. Keeping PMI out of your monthly expenses will free up cash and allow you to focus on other financial responsibilities.
Loan terms
The most common mortgage loan terms are 15 and 30 years. But you’ll also find loans with terms of five, 10 and 20 years.
A longer-term loan will allow you to pay less principal every month, but the flipside is that you will end up paying more in interest on the same loan amount over time.
Interest rates
The higher your interest rate, the more you’ll pay over the life of your loan. To find the lowest interest rate possible, you should shop around and review loan offers from several different lenders.
Comparing offers ensures you get the best mortgage rate.
Monthly liabilities
All of your regular debts, such as your student loan, credit cards, and auto loan, count toward your monthly liabilities. These also include other regular payments, like child and spousal support or personal loans.
Some of your liabilities may be more fixed than your other expenses. But you’re not without options. We’ll discuss how you can potentially lower your monthly liabilities a little further down.
Monthly housing expenses
Most lenders require you to keep your housing expenses down to 28% of your pretax income. And with all your other monthly debts and expenses added in, that should account for a maximum of 36% of your income.
Other than your total monthly mortgage payment and its associated costs, your housing expenses will include homeowner’s insurance and property tax, both of which are calculated as a set percentage of your home’s value.
And if you’re buying a condo or townhouse with a homeowner’s association, called an HOA, there will be monthly fees.
You need to factor in all these costs for an accurate monthly budget. While you can shop around for home insurance rates or properties with lower HOA fees, you’ll have less negotiating room. The only way to significantly lower these costs is to buy a less expensive home.
How much mortgage can I qualify for?
The amount of mortgage you can qualify for depends on various factors, such as your income, credit score, debt-to-income ratio, and interest rates. You can use a mortgage calculator to get an estimate. Seeking advice from a mortgage professional can also help determine how much mortgage you could qualify for based on your circumstances.
How much can I borrow?
The amount you can borrow for a mortgage hinges on various factors, including your credit score, income, debt-to-income ratio (DTI), and the property value you intend to purchase. Lenders use these criteria to assess your financial stability and the risk they incur by lending to you. Generally, a lower DTI and a higher credit score can significantly increase the amount you're eligible to borrow. Lenders prefer a DTI below 43%, meaning your monthly debt payments, including the prospective mortgage, should be at most 43% of your monthly gross income. However, this is not a one-size-fits-all scenario and specific amounts vary depending on the lender and individual financial situation.
Utilizing a maximum mortgage calculator is incredibly useful to get a ballpark figure of how much you can borrow. By inputting details such as your income, existing debts, and the anticipated interest rate, you can get an estimate of the maximum mortgage amount you can afford. This tool is designed to guide you, helping you shop for homes within your financial reach and avoid overextending your finances. Remember, the goal is not just to qualify for a mortgage but to do so in a way that maintains your financial health and future security.
How to afford a bigger mortgage
If you’ve run through the calculator a few times and are still unsatisfied with the results, you have options. You can further improve your financial standing to afford the mortgage you want in a few different ways.
The more debt you carry and the lower your credit score, the riskier you appear to potential lenders. So, if you want to make yourself a more attractive borrower, you’ll need to lower your debt-to-income ratio and improve your credit score.
But even with a few adjustments, it’s still crucial you stick to a budget that's realistic for your household income.
Start clearing your debt
When a lender evaluates your mortgage application, your debt will be a big factor. They’ll use the debt-to-income ratio tool to examine how much you owe every month and compare that against your gross (pretax) monthly income. When a lender evaluates your mortgage application, your debt will be a big factor. They’ll use the debt-to-income ratio tool to examine how much you owe every month and compare that against your gross (pretax) monthly income.
If your ratio is higher than 43%, lenders will consider you a riskier borrower, significantly lowering your chances of securing a loan with favorable terms, let alone any loan.
One way to lower your monthly debt liability is through debt consolidation. Taking out a single, lower-interest loan to pay off your other high-interest debts can make paying down what you owe more manageable.
Improve your credit score
Your credit score is another of the most important factors lenders will consider when evaluating you for a mortgage loan.
Details from your credit report are used to calculate your score. Several factors will impact your credit score, but your credit history is at the top of the list.
If you have a history of not making payments on your credit cards or other debts, that will negatively impact your rating.
A better rating will get you access to more favorable interest rates and loan terms, opening up your possibilities as a homebuyer.
Stay within your salary
Your salary is the only factor you shouldn’t try to find a way around when figuring out how much house you can afford.
Just because you can qualify for a mortgage of a certain value doesn’t mean you should take it. Mortgage lenders will almost always approve you for a larger loan than you can reasonably afford.
Why is that?
Well, the more you borrow, the more interest you’ll pay. That motivates lenders to offer you more than you should take on.
So, even if you’re potentially looking at a significant boost in your salary down the line, it’s best to use the income you’re currently earning. A wise borrower runs the numbers and works within their budget, even if that means borrowing less than what is available.
Where to go from here
After you’ve run a few scenarios through the mortgage income calculator, you should have a good idea of what you can afford to take out in a home loan.
And if you were left hoping for a little more, you also now know the steps you can take to improve your financial standing.
When you buy a home, your goal should be to ensure it doesn’t become a financial burden down the road or force you to live outside of your means from the get-go.
You may not be able to buy your dream home right away, but with a bit of work, time, and investment, you’ll no doubt find that the reality of owning a place you can afford is more satisfying than the original dream.
Max mortgage calculators FAQs
Tyler Wade has worked in personal finance for over 5 years writing for brands like Ratehub, Forbes, KOHO, and now Moneywise.com.
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