House Affordability Calculator

🏠 What is the House Affordability Calculator?

This calculator determines your maximum home purchase price using Monte Carlo simulations. Unlike simple mortgage calculators, it accounts for income uncertainty, market volatility, and the risk of running out of reserves over a 10-year horizon. It's designed specifically for California primary residences (no HOA).

💡 Why Use This Tool?

🎯 Risk-Adjusted Analysis

Get your maximum affordable price based on Monte Carlo simulation, not just a simple income ratio.

📊 Monte Carlo Simulation

Runs 1,000 scenarios with varying income growth and inflation to show probability of financial stress.

🔍 Full Cost Model

Includes property tax (Prop 13), insurance, maintenance, and PMI - not just mortgage payment.

📈 30-Year Projection

See your liquid assets trajectory over time with confidence bands for different outcomes.

🎚️ How It Works

The calculator finds the maximum home price you can afford while maintaining 4 months of emergency reserves and keeping housing costs at a manageable share of income, even in pessimistic scenarios. It runs 1,000 Monte Carlo simulations with varying income growth and inflation to stress-test each price point.

📊 Model Assumptions

• Property Tax: 1.1% of purchase price annually (California Prop 13 baseline)
• Insurance: Configurable, default 0.35% of home value annually
• Maintenance: 1% of home value annually
• Income Growth: Stochastic with 3% mean, 4% standard deviation
• Inflation: 2.5% annual increase in spending
• PMI: 0.5% of loan annually if down payment < 20%. Auto-removes at 78% LTV
• Closing Costs: Configurable, default 3% of purchase price

📈 Home Appreciation: Historical Context

The default 3% annual appreciation rate is used for rent vs. buy calculations. Here's how it compares to historical data:

Historical Averages (Nominal)

• US National (1991-2024): ~3.8%/yr
• California Median: ~4.5%/yr
• Bay Area: ~5-6%/yr (high volatility)
• Real (inflation-adjusted): ~1%/yr

30-Year Growth Examples

• 2%/yr: $1M → $1.81M (1.8x)
• 3%/yr: $1M → $2.43M (2.4x)
• 4%/yr: $1M → $3.24M (3.2x)
• 5%/yr: $1M → $4.32M (4.3x)

⚠️ Luxury Home Considerations ($3M+)

High-end homes often behave differently than median-priced homes:

• Smaller buyer pool: Appreciation can lag median homes
• Higher volatility: More sensitive to economic cycles and interest rates
• Structure depreciation: Land appreciates, but buildings need costly updates
• Location dependency: Coastal CA outperforms inland significantly

For homes above $3M, consider testing with 2% appreciation to be conservative.

Rent vs. Buy Comparison

The Rent vs Buy tab lets you compare buying at any price (defaulting to your affordable price, but overridable). It shows a side-by-side breakdown of costs and returns, the "Equivalent Rent" (the rent at which buying and renting produce identical wealth outcomes), and a sensitivity table across different investment return assumptions. Tax benefits, selling costs, and hold period are all configurable. This section is deterministic and separate from the Monte Carlo simulation.

How the renter's portfolio works

The renter's final portfolio grows from two sources, not just the upfront cash:

Upfront cash invested: The down payment + closing costs that the buyer spends on day one stay fully invested for the renter, compounding at your chosen investment return rate for the entire hold period.
Monthly cash-flow delta: Each month, the renter invests the difference between total buying costs (mortgage, tax, insurance, maintenance, PMI, minus tax benefits) and rent. In early years this delta can be thousands per month. These monthly contributions also compound over the remaining hold period.

Together, these two sources explain why the renter's portfolio can grow to multiples of the initial cash deployed — for example, $345K deployed at 10%/yr over 30 years becomes ~$6M from compounding alone, and the monthly deltas can add several million more. The "Portfolio Growth" line in the comparison shows the combined effect.

Net Worth chart

The chart shows "what if you sold today" at every month. The buyer's net worth = liquid cash (invested) + home equity (home value minus selling costs minus remaining mortgage). The renter's net worth = liquid portfolio. Both sides start from the same liquid assets; the buyer deploys part into housing while the renter keeps everything invested. Use the log scale toggle to better compare exponential growth curves.

Maximum Affordable Purchase Price

Based on your income and expenses, this is the maximum home price you can afford. Uses Monte Carlo simulation to account for income variability over 30 years.

—

Down: — | Monthly: — | Reserves after: —

Monthly Cost Breakdown

Monthly housing costs if you buy at the affordable price. Includes mortgage, taxes, insurance, and maintenance.

Mortgage (P&I) —

Property Tax —

Insurance —

Maintenance —

Total Monthly —

vs. Current Rent —

Risk Analysis

Key risk factors at your affordable price. Shows probability of cash shortfall, reserve depletion, and housing cost burden.

Run the simulation to see risk analysis.

🏠 What is the House Affordability Calculator?

💡 Why Use This Tool?

🎯 Risk-Adjusted Analysis

📊 Monte Carlo Simulation

🔍 Full Cost Model

📈 30-Year Projection

🎚️ How It Works

📊 Model Assumptions

📈 Home Appreciation: Historical Context

Historical Averages (Nominal)

30-Year Growth Examples

⚠️ Luxury Home Considerations ($3M+)

Rent vs. Buy Comparison

How the renter's portfolio works

Net Worth chart

Maximum Affordable Purchase Price

Monthly Cost Breakdown

Risk Analysis

Net Worth: Rent vs. Buy

Rent vs. Buy Comparison