Mortgage Affordability Calculator

What It Is

The mortgage affordability calculator is an online calculator at various sites which will help determine how much of a mortgage you can afford. Different web sites have different types of inputs for the calculators. Some inputs are more generic like debt which may include credit card payments, car loan payment, or home improvement loan payments. 

Types of Inputs

Some sites have these inputs for each debt listed separately and I will review which sites have the better calculators. Some will have conservative and aggressive options. This is helpful if you have an idea of how good your credit is. Higher mortgage levels are given to buyers with higher credit scores.

Information Needed

The information you will need to use the calculators will come form three primary areas. They are income, debt and the numbers on the house you want to purchase. The income can include your wages, interest income, and alimony received. The debt can be car payment, alimony payment, association fees and credit car payment. The information on the house will be down payment, loan term(number of years), mortgage rate, home owner's insurance, points, closing costs and real estate taxes. Some fields are pre-filled in to help give you a rough idea of what you can afford without digging up every piece of information. The results can show your total monthly mortgage payment, the price of the house you can afford, or/and the loan you can afford.

Front End Ratio

Some calculators will give you options for front end ratio and back end ratio. These are percentages lenders can use to determine what monthly payments you can afford. The front end ratio is what percentage of your monthly income the lender will use to determine what monthly payment you can afford. So if your monthly income is $5000 and the front end ratio is 33%, then 5000 would be multiplied by .33 to get a number of 1650. So you could afford a monthly house payment of $1650. If the front end ratio was higher you would be able to have a higher number and therfore a larger mortgage according to the lender.

Back End Ratio

While the front end ratio looks at income, the back end ratio looks at what debt you can handle. To get to this number, all of your monthly debt is divided by the gross monthly income and then the result is multiplied by 100. This will give the back end ratio. The lender may have a specific back end ratio number that they would like the buyer not to exceed. This will depend on the credit worthiness of the buyer. Some lenders will only look at the back end ratio and ignore the front end ratio.

How Realistic Are The Results?

The number you get on the results may not be exactly what loan you will be given when you apply for a mortgage. Having said that, if you use calculators on bank sites with detailed inputs, your application results will match much closer to the calculator then if you used calculators on generic sites. Generally the more detailed the calculator is and more true your inputs are, the more realistic will be the results.

Mortgage Affordability Calculator Reviews

The Cnn Money mortgage affordability calculator is slow loading but it's worth it as it will give you details of what you can afford. Bankrate.com has several different types of calculators and is worth a visit to educate yourself about the numbers involved in purchasing a home.Some calculators will describe an input in a different way. For example, MSN's money central affordability calculator describes down payment as the money available for home purchase. Also instead of having ratios or aggressive conservative options, they have a how's your credit option. They give four choices from bad to excellent. Their calculator will also hide more detailed options. The M and T bank mortgage's affordability calculator even provides a graph to help you get visual of the numbers. I found the visual to be extremely helpful in understanding mortgage numbers.

Closing Costs Breakdown

For closing costs, some of the inputs are origination fee, points, and other closing costs. Origination fee is the cost to set up a loan with a lender. The fee can vary between .5 to 2 percent of the loan. So if the origination fee was 1 percent on a 100,000 dollar loan, the fee would be1000 dollars.

Conclusion

Once you know what you can afford, then you can begin to look at houses online within that cost range. If you are really serious, go to a lender to who will crunch the numbers and give you piece of paper showing what you can afford. Take that pre-qualification letter to a real estate agent and start looking at houses. In today's market where the buyer is king, most real estate agents won't even ask for the pre-qual letter until you select the property you want to buy. The mortgage affordability calculator can be an important tool in the first step to purchasing a home.