If you see a house of a certain price and have a little experience with spreadsheets, it’s fairly easy to calculate the mortgage payment and compare it to your income to see if you can afford the home. But if you want to do the reverse calculation—start with your income and see what price home you can afford—it’s a little more difficult.
For that reason, NAHB makes the spreadsheet calculators it uses to find a maximum affordable house price available on its web site. Using one of these calculators, if you know what your income is and how much you have for a down payment, you can enter them as shown below.
The calculator will then show you that, if you earn $60,000 a year and have $10,000 for a down payment, under national average assumptions about the mortgage and tax and insurance rates, you can afford to a buy a home priced up to about $218,500, based on conventional mortgage underwriting standards. The result looks like this:
The spreadsheet is designed to perform the calculation with a single combined key stroke, although you need to have Excel set up correctly to make this work. The NAHB web site contains instructions for setting up Excel. The site also contains a second version of the calculator that lets you specify the loan-to-value ratio instead of a down payment. For convenience, the updated versions of the calculators contain national averages for the required assumptions and links to current interest and local property tax rates.
Possible applications of the affordable spreadsheet calculators include buyers using them to get a quick idea of how much home they can afford, as well as builders or realtors doing the same for prospective customers.
For access to both versions of the affordable house price calculator, and instructions for setting up Excel to run them, click here.