# Simple Affordability Calculator

I’m in Texas for the weekend with limited access to the internet, so unfortunately I was unable to write a substantive post today. However, I did have some time on the airplane to create a javascript version of the basic affordability calculator I developed in Excel a few weeks ago.

Given that home prices are finally starting to come back down into semi-reasonable territory for some, I thought it might be a useful tool to share. For more about affordability, spend some time browsing the affordability tag archive.

Enjoy, and please feel free to share any feedback.

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

1. 1
Mama says:

Interesting. I just used this and I have to say — people are brave. Your calculator comes with 28% right where our monthly budget will max out. We’re saving for a downpayment so I know exactly what we can shell a month before we need to cut down on food, diapers or cut off the internet. We have no debt… How do folks do 30%? Maybe if you don’t have kids or don’t contribute to their healthcare? But thanks for posting this calculator — it was fun.

2. 2
Jason says:

RE: Mama @ 1 – I have a one year old and my wife is a stay at home mom. I just ran the calculator for the amount I pay in principal, interest, insurance and property taxes and it also comes out to 28% of my salary and we are doing just fine. 30% isn’t hard to do. We don’t even run a budget in our household, we just make sure we don’t spend more than we can afford. It really is that easy.

3. 3
query_squidier says:

I too think this may be a little optimistic. No kids or debt for me but I still don’t feel this is affordable for me? ‘Course, I’m a social liberal, fiscal conservative. :)

4. 4
jcricket says:

Depending on whether you rely on only my income or my combined income with my wife my house is either “barely affordable” (30%) or very affordable (< 20%). And I’m not even including my bonus (which I’ve gotten every year and bumps my income another 10%).

We have kids, pay for child care, save 20% for retirement, a bunch for our kid’s college funds and have a 6 month savings cushion and live a pretty comfortable lifestyle. We just place a premium on our living situation, and are willing to pay that much of our income to get the type of house and neighborhood we want to live in. I suppose we might be sacrificing some things like luxury travel or high-end cars or perhaps early retirement, but none of those matter to us.

I’m not saying this to brag, just to point out that everyone’s definition of “affordable” takes into account different priorities. Even were my wife to have no job, we’d be ok (in that scenario we’d get rid of our childcare expense and while it wouldn’t be a “wash” it wouldn’t be a massive hardship).

Sure, at a certain point it’s too much no matter what priority you place on housing (spending 50% of your income on housing pretty much ensures you won’t save for retirement, college). But I think 30% is totally affordable, as long as you’re not also gold-plating everything else in your life.

5. 5
Tyler says:

I think that 30% is on the high side now for people’s new mental state. Previously, the thought was, how much am I willing to sacrifice to leverage this investment? Now, I think people are looking at it like it really is: an expense.

Tim, I like the calculator. Do you mind if I post it on our tools section of http://www.ChoiceA.com ? Either a link, or embedded would be nice.

6. 6
deejayoh says:

30% of income as a limite makes sense if you are making \$75k or \$100k a year.

If you are making \$250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

7. 7
b says:

I always thought it was 30% of NET income. I guess I am just too conservative!

8. 8
Scotsman says:

Allowing total debt payments at 36% of gross, as allowed by current conventional loan underwriting standards makes things pretty tight. Those unexpected expenses- transmission repairs, etc. can easily put a household underwater. When you think about it, traditional standards are really pretty generous. Some of the stuff we saw over the last couple of years was truly outrageous!

9. 9

I would bump up the tax figure to 1.25% –that’s what is commonly used in the mortgage biz when we don’t have exact figures. Plus, once you buy your home, the King County Tax Assessor may increase what is paid now…let’s hope he’s not driving over to the property when he does the assessment. Home buyers should be prepared to have their property taxes increase…even if it’s slight.

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Jonny says:

semi reasonable? another 30% off would put us in that territory.

11. 11
kfhoz says:
I would bump up the tax figure to 1.25% –that’s what is commonly used in the mortgage biz when we don’t have exact figures. Plus, once you buy your home, the King County Tax Assessor may increase what is paid now…let’s hope he’s not driving over to the property when he does the assessment. Home buyers should be prepared to have their property taxes increase…

Tax assessment always confuses me. In Australia your taxes are automatically re-assessed to the sale price every time a property changes hands, which seems like the obvious engineering calculation.

Tim’s calculator used a % of sales price for taxes and quite a few properties are now selling well below assessed values. How could the KC Tax Assessor justify driving over to raise the assessment? Or are you saying that the % that Tim used in his example is not the real tax rate? or ?

12. 12
Tyler says:

I have a friend who recently (6 months ago) bought a bank-owned house for ~60% of the tax assessed value. He has been taxed at the higher rate for at least the first year. Basically, the schools + .gov have already budgeted the money, and they insisted to him that he just got a steal of a deal below market value. Obviously, 6 months later, he paid a fair price for it, but I doubt his assessed value will ever go that low.

13. 13
EconE says:

By deejayoh @ 5:

30% of income as a limite makes sense if you are making \$75k or \$100k a year.

If you are making \$250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

The \$75-100k person may drive a Camry, take reasonable vacations, eat at Sizzler and wear a Timex.

The \$250k person may drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin.

Disposable income may grow disproportionately but if the spending wasn’t also dispraoportionate there wouldn’t be such things as “luxury” brands.

14. 14
deejayoh says:

By EconE @ 12:

By deejayoh @ 5:
30% of income as a limite makes sense if you are making \$75k or \$100k a year.

If you are making \$250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

The \$75-100k person may drive a Camry, take reasonable vacations, eat at Sizzler and wear a Timex.

The \$250k person may drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin.

Disposable income may grow disproportionately but if the spending wasn’t also dispraoportionate there wouldn’t be such things as “luxury” brands.

oh, is that part of the rule too? That I have to spend like that, so I can’t get a loan over 30%? Good to know

thanks for filling me in. I thought I had it figured out.

15. 15
Mama says:

jcricket, I would _never_ include a bonus in my mortgage calculations — at least not unless I also calculate the likelihood that one of my kds will have an ER visit or a root canal :). Also, if your wife lost her job, you would have to make other decisions — like do you know put 40% into 401K since she wont be contributing…It’s nice that you can still pay 30% of gross on your income though.

FWIW, I don’t think pure income makes as much difference (200K vs 100k) as disposable income makes — tax bracket, number of dependents, other expenses(e.g. aging parents) can all make a huge difference.

16. 16
EconE says:
By EconE @ 12:
By deejayoh @ 5:
30% of income as a limite makes sense if you are making \$75k or \$100k a year.

If you are making \$250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

The \$75-100k person may drive a Camry, take reasonable vacations, eat at Sizzler and wear a Timex.

The \$250k person may drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin.

Disposable income may grow disproportionately but if the spending wasn’t also dispraoportionate there wouldn’t be such things as “luxury” brands.

oh, is that part of the rule too? That I have to spend like that, so I can’t get a loan over 30%? Good to know

thanks for filling me in. I thought I had it figured out.

Part of the “rule”? You warm my cockles.

You were the one that sounded pretty sure of yourself. :shrug: Are you saying people with money don’t spend? I didn’t say that everybody spent like that but as I said…there was quite a proliferation of luxury brands over the last number of years.

Did you miss it?

17. 17
deejayoh says:

what I said was…

“hard and fast rules like that don’t make a lot of sense.”

Over the last 10 years, lots of people making \$75k managed to “drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin” too. Seems like it was part of the problem

Point is that people who can manage their money should have the right to do what they want.

18. 18
Jonness says:

Here is an interesting prediction from Jan 2005 that I found to be quite entertaining. It begs the question–even if the home is affordable, do you really want to buy it?

19. 19
EconE says:

Ok…you got me. The \$75k wage earners were HELOCing VC’s.

No wealthy person would want something like that when you can have a nice flashy Rolex for a fraction of the cost.

;^)

20. 20
Tyler says:

RE: Jonness @ 17

Reading that page is like an incredibly condensed version of this blog! Tim, I am curious if you ever do a bubble recap/summary post in a few years how closely it will mirror the itulip piece!

21. 21
Jbeans says:

Huh. I did the calculator and it gave me a result that came in at 20%/affordable. Yet the monthly payment was past what we are comfortable with paying. Go figure.

22. 22
faster says:

What’s a Vacheron Constantin?

23. 23
David Losh says:

RE: Jonness @ 17

You’ll notice this information was out there in 2005. In 2006 most of the people I talk with were calling the rise in home prices unsustainable. In 2007 there was a panic to sell by the very people who disregarded earlier warnings.

Today it makes absolutely no difference what the predictions were. I think the term on the internet is transparency. Are you today making an informed decision? The answer is no because you can not predict the future.

I know where the economy is headed, I know what impacts my life, I know what I’m capable of, and that’s all that matters.

24. 24
enkindler says:

Homes are getting close to my cost containment targets in outlying areas, I have lived in the city for years and my current landlord wants to sell the house I’m in (at a price point where my payment would be 2.5X my rent) and thus I will be forced to move soon. Paying more to live in a high crime area just so I can walk to 3 grocery stores isn’t worth that kind of premium IMHO.

The price range I am looking at could be paid for with unemployment insurance if I did get laid off. And I have zero debt except for a car loan which I only got due to a need to increase my credit score. I had lived off cash until my 30’s and thus had no credit score!!!

Anyway, I am not buying a house for an “investment” and I will be buying well below my means, at about 11% of gross income.

I probably won’t buy for another 6-8 months but if you are looking to spend money on a place to live things are looking pretty good if the outlying areas are where you want to live for a few decades.

25. 25
wreckingbull says:

RE: enkindler @ 24 – One thing to keep in mind is the rental deals in outlying areas are even better than the purchase deals. I moved from Seattle to a small town 90 miles away and am renting a 700K home (that is 2002 price + full cost of renovation) for \$1575/month.

Why not sign another 12 month lease and have a heck of a time living it up? By the time you want to buy, prices will have deflated even more. Furthermore, you will have spent time in your new area and be much better prepared to make the final big investment of a home.

The most important thing is that you are planning for a worst-case scenario and you should be commended for that approach.

26. 26
EconE says:

RE: faster @ 22

It’s a wristwatch….a stupidly ‘spensive one.

There is a definite hierarchy when it comes to watches.

True wristwatch connoisseurs/collectors seem to be enthralled by the sophistication of the movements rather than the “bling” factor.

Watches in this category would be ones such as Patek Phillepe and Vacheron Constantine. Some of them look as plain as a Timex…a PP Caletrava or a VC Patrimony. The more complex the mechanism, the more stratospheric the price.

The next level down would be watches such as Cartier and Rolex where the buyers prefer them for their “showiness” and “brand recognition”…You know…the way people are like “Wow…a Rolex”. The more diamonds, the more expensive the price.

I’m assuming that \$75k HELOCer trying to keep up with the “Joneses” would prefer a more outright display of their “Wealth” such as a car. And I’d be willing to bet that the watch of choice of the \$75k heloc crowd would probably be something like a Rolex Submariner. It’s the Hummer H2 of watches.

I personally find the whole expensive watch thing a little silly.

It’s the same for all the Home Entertainment gear. I’m sure that Bose, Denon, Sony etc. loved the \$75k HELOCers.

OTOH…brands such as Jeff Rowland, Mark Levinson, Pass Labs, Krell, Ayre, Bryston, Simaudio (all made in North America BTW…Canada included) would target the 250k+ group.

27. 27
e-sidedave says:

I am scared at what we “can” afford. We are one of those \$250K couples, but we don’t drive a BMW or vacation in Europe and don’t even know what a Vacheron Constantin. We were shocked that we qualified for an \$800K + house when we bought in 2005. Neither of us could imagine having a \$5K + monthly mortgage. We like to do things like save for retirement, save for a rainy day, save for our kids’ college education. And we like to occasionally eat at the Met. ;-)

Knowing what people on my team make and having a general idea of their spending (house, cars, childcare, etc), I really don’t see how people do it. Even if people use those affordability calculators and don’t overspend, I can see how easily things can go south.

I don’t have any answers, just rambling observations.

28. 28
Sid says:

I think you should have fields for how much your other monthly expenses are and how much your monthly savings target is. That tells you Income – Regular Monthly Expenses – Savings Target = What you can afford on a home.

What you can afford on a home needs to cover not just mortgage+insurance+property tax, but also HOA dues.

29. 29

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30. 30

[…] Can you afford it using a conventional 30-year fixed-rate loan? […]

31. 31
Luke Shepard says:

This calculator was useful. It would also be cool to be able to leave the home price blank, and have the calculator show you what the borderline “affordable” price is for you. For many new home buyers, the price is the variable they are most likely to be able to control.

32. 32

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33. 33

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34. 34
yerbolat says:

So, 250k qualifies for \$1mil mansion. I wonder if lenders would approve it nowadays. I also wonder if Tim took 0% WA income tax into the equation.

35. 35
First time home buyer - priced out says:

Crazy!

So I just put my salary into the affordability calculator and determined the maximum amount I can “afford” to pay based on my gross income with 20% down and 4.5% interest rate.

I then went to zillow and popped that maximum \$ amount into the search engine looking for a house that is fairly basic:

3 bedrooms
1.5 bathrooms
2,000 sqft

There are currently 13 homes for sale in Seattle (very far south Rainier Beach and also Delridge) that I can afford. The schools have terrible “ratings” so I won’t move to those neighborhoods. I want to try to offer my child the best education.

There are currently zero homes in Bellevue that I can afford.

I am a Structural Engineer with a Master’s degree from UW. I make a decent enough salary, yet I have not bought a house because I am worried of spending more than 30% of my earnings on my home, especially when I have a family to take care of.

I currently pay 13.5% of my gross earnings on rent per year. I have a view of the water and mountains from every window in the place I rent. I have a front yard. It’s only 2 bed, 1 bath, 1500 sqft, which I can manage. When I buy a home I am looking to upgrade. I think it is best for me to continue to rent until I can really justify buying a home.

36. 36
mike says:

RE: First time home buyer – priced out @ 35 – This is why I bought in 2012 when prices and rates were low. We found an affordable 3/1.5 2000 sq ft 3 blocks from a “10” rated elementary for just a hair above the median price. Granted it was a fixer upper but I enjoy working on it. We were paying about 15% of gross on rent and the PITI came out to about the same back then. Now, with prices up over \$100K and rates up a point, I’m not sure buying the same house would make sense mostly because of the amount of work (\$\$\$\$\$) it needed and still needs over the next few years.

Other buyers however are deciding these houses still make sense at today’s prices even if they’re money pits. We won’t know for a few years how good of a decision that is currently but people are certainly jumping in and taking the risk.