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 three price points (Conservative, Neutral, Aggressive) based on your actual risk tolerance, not just a single number.

📊 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.

🎚️ Risk Profile Definitions

Conservative

Traditional 28% rule. 6 months emergency reserves. Housing ≤28% of gross income. Very low financial stress.

Risk threshold: ≤25 | Housing ratio: ~28%

Neutral

Moderate stretch. 4 months reserves. Housing ~33% of gross income. Some flexibility needed in lean years.

Risk threshold: ≤45 | Housing ratio: ~33%

Aggressive

Maximum stretch. 3 months reserves. Housing ~40% of gross income. Requires income growth or spending cuts.

Risk threshold: ≤65 | Housing ratio: ~40%

📊 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%
• 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.

Breakeven Price Constraint

The breakeven analysis caps the maximum price based on your liquid assets. With your down payment percentage and closing costs, we calculate the highest price you could actually purchase while maintaining minimum reserves ($30k). If buying beats renting at all prices you can afford, we show this as the maximum with a "+" indicator.

Maximum Affordable Purchase Price

Based on your income and expenses, these are the maximum home prices you can afford at each risk level. Uses Monte Carlo simulation to account for income variability over 30 years.

Conservative

—

Risk ≤25

Neutral

—

Risk ≤45

Aggressive

—

Risk ≤65

Monthly Cost Breakdown

Show for:

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

Mortgage (P&I) —

Property Tax —

Insurance —

Maintenance —

Total Monthly —

vs. Current Rent —

Cash Reserves After Purchase

Log Scale

Shows how your liquid savings evolve after buying at the selected affordable price above. Simulates 1,000 scenarios with variable income growth. If the line goes negative, you'd run out of cash.

Shaded area shows 20th-80th percentile range. Solid line is median (p50). Toggle profiles above to compare.

Rent vs. Buy: 10-Year Breakeven Analysis

Maximum purchase price where buying costs the same as renting over 10 years. Accounts for home appreciation and equity built through principal payments.

Run the simulation to see 10-year rent vs. buy breakeven analysis.

Rent vs. Buy: 30-Year Breakeven Analysis

Maximum purchase price where buying costs the same as renting over 30 years. Accounts for home appreciation and equity built through principal payments.

Run the simulation to see 30-year rent vs. buy breakeven analysis.

Risk Analysis

Key risk factors for each affordable price point. Shows probability of cash shortfall, reserve depletion, and housing cost burden.

Run the simulation to see risk analysis for each profile.