Rent Payment Mortgage Affordability Calculator
Have you ever wondered what size mortgage you can afford based on your monthly rent payment? Our Rent Payment Mortgage Affordability Calculator enables you to determine the home loan you could afford if your monthly rent payment was your mortgage payment. It can be helpful to understand what your monthly rent payment equates to in terms of a mortgage amount, especially if you are considering buying a home. This calculator is particularly helpful for people who are paying a high monthly rent as they may not be aware of the home loan they can afford with minimal change in their monthly housing expense.
How Are Rent Payment Mortgage Affordability Calculator Works
Our Rent Payment Mortgage Affordability Calculator enables you to understand what size mortgage you can afford based on your rent. Our calculator uses the inputs below:
Monthly Rent Payment. Input your current rent payment to understand the loan you could afford based on an equivalent mortgage payment.
Total Monthly Debt Payments. This figure includes payments for credit cards as well as car, student and personal loans but excludes your current rent payment. Please input your monthly debt payment and not your current loan balance. For example if you pay $400 per month on a car loan with a $5,000 balance, you include $400 in the monthly debt payments field. Your monthly debt expense is an important input because the lower your debt, the higher the mortgage amount you can afford.
As demonstrated by our calculator, the mortgage amount you can afford based on your rent is based on several factors including the following:
Mortgage Rates. Interest rates are a significant factor that determine the mortgage you can afford. Lower rates mean you qualify for a larger loan which also means your monthly rent payment goes further if you bought a home. Our calculator uses current interest rates to show you the mortgage you can afford
Loan Length. Our calculator shows you the 30 and 15 year fixed rate mortgage you can afford based on your rent. The loan amount you can afford with a 30 year mortgage is more than for a 15 year mortgage because the monthly payment is lower.
Monthly Income. Our calculator determines the monthly gross income required to afford both of these loans, which you can compare to your current income. Because mortgage and rent qualification requirements are different you made need to make more money to qualify for a mortgage even though the payment is the same as your monthly rent.
Please note that multiple factors such as your down payment, credit score, debt-to-income ratio and lender guidelines determine your ability to qualify for a mortgage.
Key Buy Versus Rent Considerations
Total Monthly Housing Expense When You Own a Home
In addition to making a monthly mortgage payment homeowners are responsible for paying property taxes, homeowners insurance and other potentially applicable housing-related expenses such as mortgage insurance and homeowners association (HOA) dues. Additionally, homeowners are also responsible for ongoing property upkeep, maintenance and repairs. You should consider all the costs that go into total monthly housing expense, and not just compare a mortgage payment to your rent payment, when evaluating if you should rent or buy a home.
Fixed Monthly Mortgage Payments
One of the main benefits of owning a home is that your monthly mortgage payment is fixed for up to thirty years, if you select a fixed rate mortgage. By comparison, your rent payment is subject to increase annually. In the long run, having a fixed mortgage payment offers significant financial benefits and certainty as compared to a monthly rent payment which is subject to increase every year. Our Rent Payment Mortgage Affordability Calculator shows how your monthly rent payment converts into a fixed rate mortgage.
Share in Property Appreciation and Depreciation
Another factor to consider when owning a home is that you share in any change in property value. If your property value increases you share in the appreciation and on the other hand, if your property value decreases you also share in the depreciation. Home ownership provides upside in the event your property value goes up but also risk in the event your property value goes down. If your property value declines you could lose part or all of the down payment you made to buy the home. Renters are not impacted by a change in the value of the property they rent.
Financial Obligation
Getting a mortgage and buying a home are significant long-term financial obligations as compared to the flexibility afforded by renting. Mortgages are typically fifteen-to-thirty years in length and borrowers are responsible for major repairs or renovations required to maintain the property. By comparison, most leases are usually one year in length and renters are not responsible for property repairs. Prospective home buyers must be comfortable with the increased financial responsibility and commitment that comes with owning a home. The advantage of buying a home is that you pay off your mortgage over time which can provide a significant financial boost. Not having a mortgage or a monthly payment reduces your financial obligation over the long run.
Mortgage Qualification Requirements
The process to qualify for a mortgage tends to be more rigorous than qualifying to rent a property. Lenders review multiple mortgage qualification requirements including your credit score, debt-to-income ratio and employment history. In many cases, you may be permitted to spend more on your monthly rent than a lender would permit you to spend on your mortgage payment and other housing expenses including property tax, homeowners insurance and homeowners association (HOA) dues, if applicable, which limits what size mortgage you qualify for. Our Rent Payment Mortgage Affordability Calculator determines how much money you need to make to qualify for the mortgage you could afford based on your rent, which may be higher than your actual income.
Eliminate Possibility of Being Evicted
Renting exposes you to the risk that you may lose your lease and be evicted in the future. This risk is magnified for senior citizens who may be on a fixed income and unable to afford higher rents elsewhere. As property values and rents increase over time the risk of eviction increases, especially if you have been a tenant for a long period of time. The landlord may want to turn over the unit and lease it to someone else at a higher monthly rent. While most communities have laws and regulations that cover evictions this is an important consideration that supports buying a home over renting.
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Sources
"Rent vs. Buy" My Home by Freddie Mac. Freddie Mac, 2019. Web.