Affordability Calculator

¹ Monthly Income: Mortgage lenders primarily use gross monthly income to calculate total income for mortgage qualification. This figure represents the total earnings before any deductions such as taxes or other expenses.
Gross vs. Net Income: 
Mortgage lenders primarily use gross monthly income to calculate total income for mortgage qualification. This figure represents the total earnings before any deductions such as taxes or other expenses.
1. Gross Income: Total earnings before deductions, including salary, bonuses, and other income sources.
2. Net Income: Earnings after deductions, reflecting actual take-home pay. Often used for self-employed borrowers.

Considerations for Self-Employed Borrowers: For self-employed individuals, lenders may also consider net income to provide a more accurate assessment of financial capability. This is particularly important because self-employed income can vary significantly due to business expenses.

Documentation Requirements: Lenders typically require documentation to verify both gross and net income, which may include:

• Two years of tax returns
• Profit and loss statements
• Bank statements

Understanding how lenders evaluate income helps borrowers prepare effectively for the mortgage application process.

² Monthly Debt Payments for Mortgage Analysis (all monthly obligations other than housing)

When applying for a mortgage, lenders evaluate your financial situation by analyzing your monthly debt payments. These payments are crucial for calculating your debt-to-income (DTI) ratio, which helps determine your ability to manage additional debt.

Key Components of Monthly Debt Payments:

In addition to your total monthly housing payment (“PITI”), the following items are typically included in the monthly debt payments considered by lenders:

• Car Payments: Monthly payments for any auto loans or leases.
• Student Loans: Payments for educational loans, even if they are deferred.
• Minimum Credit Card Payments: The required monthly payment on credit card balances.
• Personal Loans: Payments on any personal loans you may have.

Importance of Debt-to-Income Ratio
Lenders use the DTI ratio, calculated by dividing total monthly debt payments by gross monthly income, to assess your financial health. A lower DTI ratio indicates a better balance between income and debt, making you a more attractive candidate for a mortgage.
³ Monthly Property Taxes (est.):
Annual Property taxes estimates are computed on 1.25% of the purchase price computed as follows

1. Purchase price x 1.25% = annual property tax
2. Annual property tax / 12 = monthly cost

Property taxes can be collected as a part of your monthly payment making it easier for you to ensure payments are easily paid and always on time.
⁴ Monthly Home Insurance (est.):
Typical Hazard Insurance Cost (% of Home Value)

• 0.25% – 0.50% of home value per year → National baseline range
• 0.50% – 1.00%+ → Higher-risk markets (coastal, wildfire, storm-prone areas like parts of California, Florida, Texas)