1. What is Buying Power?

Buying power represents the maximum amount a borrower can afford for a mortgage based on their income, debt-to-income ratio, and current mortgage rates. It helps potential homebuyers understand their budget before house hunting.

2. How Does the Calculator Work?

The calculator uses the buying power formula:

Where:

• \( Income \) — Monthly income in currency
• \( DTI \) — Debt-to-income ratio (decimal)
• \( Mortgage\ Rate \) — Monthly mortgage rate (decimal)

Explanation: The formula calculates how much mortgage payment your income can support given your DTI ratio and current interest rates.

3. Importance of Buying Power Calculation

Details: Knowing your buying power helps set realistic expectations when shopping for homes and prevents wasting time on properties outside your budget.

4. Using the Calculator

Tips: Enter your monthly income, debt-to-income ratio (typically 0.36-0.43), and current monthly mortgage rate. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical DTI ratio?
A: Most lenders prefer a DTI below 0.43, with 0.36 being ideal for conventional loans.

Q2: How does mortgage rate affect buying power?
A: Higher rates decrease buying power, while lower rates increase it. A small rate change can significantly impact affordability.

Q3: Should I include all income sources?
A: Include only stable, verifiable income that will continue for at least 3 years.

Q4: Does this include property taxes and insurance?
A: No, this calculates principal and interest only. Add 20-30% for taxes and insurance in most markets.

Q5: How accurate is this estimate?
A: This provides a general guideline. Actual loan amounts may vary based on credit score, loan type, and lender requirements.