Loan Affordability Calculator

This loan affordability calculator helps you determine how much you can borrow based on your income, expenses, and financial situation. Enter your monthly income, expenses, and desired loan terms to calculate your maximum affordable loan amount.

Most lenders prefer a DTI ratio of 36% or less

How the Loan Affordability Calculator Works

The loan affordability calculator uses the following steps to determine how much you can borrow:

1. Calculate Available Monthly Income

First, we determine how much income you have available for loan payments:

Available Monthly Income = Monthly Income - Monthly Expenses

2. Calculate Maximum Monthly Payment

Based on your debt-to-income ratio limit, we calculate the maximum monthly payment you can afford:

Maximum Monthly Payment = (Monthly Income × Maximum DTI Ratio) - Existing Debt Payments

3. Calculate Maximum Loan Amount

Using the maximum monthly payment, we calculate how much you can borrow:

Maximum Loan Amount = Maximum Monthly Payment × [(1 - (1 + r)^-n) / r]

Where:

  • r = Monthly interest rate (annual rate divided by 12)
  • n = Number of payments (loan term in years × 12)

4. Calculate Recommended Loan Amount

We also provide a more conservative recommended loan amount (80% of maximum):

Recommended Loan Amount = Maximum Loan Amount × 0.8

Important Considerations

When determining how much you can afford to borrow, consider these factors:

  • Most lenders prefer a debt-to-income (DTI) ratio of 36% or less
  • Some loan programs allow DTI ratios up to 43% or even 50% in special cases
  • Your credit score will affect your interest rate and loan approval
  • Consider future changes in income and expenses
  • Include a buffer for unexpected expenses