Home Price Affordability Calculator

Posted By PK Last updated September 26th, 2011 7 Comments

In our last article, we promised you a calculator so you can copy our methodology and calculate ‘affordable’ houses by determining what an acceptable monthly payment would be. In our current article, we deliver! Thanks to Ironman at Political Calculations for the calculator creation script, it was very useful once again!

Home Affordability Calculator

In the Don’t Quit Your Day Job Home Affordability Index we described in our last article, we discussed how a synthetic index of home affordability can be constructed based upon down payments, mortgage interest rates, front end debt to income ratios, and a salary. Using our St. Louis Fed Data for January 30 year mortgage rates, we were able to determine what home prices were ‘affordable’ with 25% front end DTIs and 20% down payments. Varying those numbers, especially the DTI, make a huge difference in the calculated affordability measure. For example, Bank Rate reports that 28% is a better debt to income ratio. Rather than forcing numbers upon you, we present this calculator where you can force numbers upon yourself!

Note that the ‘affordability’ number presented is a measure of how much house can be afforded with a designated monthly payment – Salary divided into 12 months, multiplied by the front end debt to income ratio. This happens to be the way that many people shop for homes, for better or worse. Your own situation is unique – although using the proper set of inputs can determine what a bank may offer you in terms of credit, the amount of house you purchase is an individual decision. For better or worse, this is how a huge subset of home buyers shops for a home.

Home Buyer Purchase Information
Input Data	Values
Down Payment (%)
Mortgage Rate (%)
Mortgage Term (Years)
Gross Annual Income ($)
Front End Debt to Income Ratio (%)

Calculated Home Affordability Based on Monthly Payment
Calculated Results	Values
Synthetic Affordability Measure ($)

Code created with assistance from Political Calculations

For a simple example, the median income in Santa Clara County was $84,990 in 2009. Current mortgage rates are (according to Bankrate on 9/25/2011) 4.00%. Using a 28% DTI and a 20% down payment, “Affordable” housing in Santa Clara County is $519,228.23 or less. Run the numbers in your area!

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Bret @ Hope to Prosper

Cool calculator. I wish more people would have used these prior to 2008.
http://www.dqydj.net PKamp3

Bret,

If they used a 25% Front End DTI I think a lot of people would be in better shape! The SEC might get into the game, and in this text it looks like they are proponents of 28% as a number (search “debt to income”):

http://www.sec.gov/rules/proposed/2011/34-64148.pdf
- Bret @ Hope to Prosper
  
  I remember barely sqeeking by with a 30% back end ratio. But, we did it on a single income and had a solid down payment. I think the biggest factor is the down payment. In Texas, where a large down-payment is required by state law, they didn’t have near as many foreclosures as the rest of the western states. When people have “skin in the game” they aren’t so casual about walking away.
- Bret @ Hope to Prosper
  
  Hey Paul, I forgot to mention one thing.
  
  The SEC? RU freaking kidding me? The SEC investigated Madoff four times and never detected fraud. They never even cracked his books once, after five credible complaints. They have absolutely no business regulating mortgages, since they obviously can’t handle the fraud on Wall Street.
  
  My vote is for the FDIC to set the standards. I would much rather see Sheila Bair regulate mortgages than the Fed or SEC. They could keep the banks solvent at the same time. What a novel concept.
  - http://www.dqydj.net PKamp3
    
    I’m too pessimistic to think any government agency can do a decent job regulating mortgages… Maybe we should give it to the FDA or the NOAA? I kid, but I’d hate to see mortgages start to (start to? Maybe continue to, heh.) be used politically.
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Home Price Affordability Calculator

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