How to Calculate Affordability

The Affordability Calculator provides the flexibility to adjust payment details according to your preferences while offering valuable suggestions in each field to guide you. You can estimate affordability based on your annual income, monthly debts, and down payment or, alternatively, from projected monthly payments along with the initial amount. Our tool includes advanced features that allow you to refine your assessment, considering specific aspects such as property taxes, homeowner's insurance, and homeowner association fees (HOA), if applicable. Get more details on these variables in our calculator to define your ideal housing budget. For an accurate estimate tailored to your specific needs, it is recommended to consult with specialized professionals, such as Juan Carlos Carrera's Real Estate Team at (702) 297-6053, who can provide detailed and personalized advice based on your situation at no cost for the consultation.

Annual Income

It refers to the total amount of money a person earns in a year, before taxes and deductions. This income can come from various sources, such as salary from a job, business income, investments, or other sources of income. In the context of the home affordability calculator, annual income is used as a factor to determine how much a person can afford to spend on their home, taking into account other expenses and financial obligations.

Total Monthly Debts

In the financial context, it refers to the sum of all monthly payments that a person must make to cover their financial obligations, such as loans, credit card payments, car payments, mortgages, among others. These monthly payments typically include both interest and principal, as well as other regular financial commitments. When used in an affordability calculator, the total of monthly debts is a critical factor in determining how much a person can afford to spend on the purchase of a home, as it directly affects the available monthly payment capacity for a new mortgage. The calculator may take these existing payments into account when assessing the affordability of a new mortgage.

Interest Rate

In the financial context, the interest rate is a percentage applied to the capital that is borrowed or invested. It is the additional amount paid for the use of borrowed money, or the amount earned by investing money. In the context of a mortgage or a loan for the purchase of a home, the interest rate represents the cost of borrowed money. For example, if you take out a mortgage with an interest rate of 4%, you would pay an additional 4% on the principal amount of the loan as interest each year. The interest rate plays a crucial role in determining the monthly and total payments of a loan, as it affects the amount of interest that accumulates over time. When calculating the affordability of a mortgage, the interest rate is a key factor considered along with other elements such as the loan amount and loan term.

Loan Term

It refers to the period of time during which a loan is scheduled to be paid in full. The loan term is commonly expressed in years. For example, a typical mortgage loan may have a term of 15, 20, or 30 years. The choice of the loan term directly affects the monthly and total payments that the borrower will make. Shorter terms often have higher monthly payments, but the borrower pays less interest overall and repays the debt more quickly. Longer terms may result in lower monthly payments but with higher total interest costs over time.

Property Tax

This tax is a levy that property owners, such as houses or land, must pay to the local government. The amount of property tax is typically based on the assessed value of the property and is used to fund local public services such as schools, emergency services, and public works. In the context of housing affordability, property taxes are an additional cost that homeowners need to consider when calculating their monthly expenses. Some affordability calculators allow you to input the estimated amount of property taxes to obtain a more accurate estimate of the costs associated with homeownership. These taxes can vary based on location and local tax rates.

Private Mortgage Insurance (PMI)

PMI stands for Private Mortgage Insurance, a type of insurance that lenders may require borrowers to have when applying for a mortgage and making a down payment of less than 20% of the home's value. The primary function of PMI is to protect the lender in case the borrower is unable to make payments, and the loan enters a default situation. If the borrower is unable to pay the mortgage, and the property is sold in a foreclosure, PMI can cover the lender's losses. It's important to note that PMI does not provide protection for the borrower; instead, it is an additional cost that the borrower must bear to secure a loan with a down payment less than 20%. Once the loan balance is reduced to 80% or less of the home's value, the borrower may request the cancellation of PMI.

El seguro de propietario de vivienda se basa en el precio de la vivienda y se expresa como una prima anual. La calculadora divide ese total entre 12 meses para ajustar el pago mensual de su hipoteca. Las primas anuales promedio generalmente cuestan menos del 1% del precio de la vivienda y protegen su responsabilidad como propietario y aseguran contra peligros, pérdidas, etc.

Homeowner's Association (HOA) dues

Homeowner's Association (HOA) dues are regular payments that homeowners in a community with a Homeowner's Association are required to make. These fees are used to fund and maintain common areas and shared services in the community, such as gardens, recreational areas, security, maintenance services, and, in some cases, insurance for the community. The amount and frequency of HOA dues vary depending on the community and the facilities it provides. When considering the affordability of a home, it is important to take into account these additional fees, as they contribute to the monthly costs associated with homeownership in a community with an HOA.