METHODOLOGY & SOURCES

What HomeFit calculates—and what it cannot know.

HomeFit is a planning model for US home buyers. It deliberately separates a lender-style payment from the fuller household cost of ownership. Results are estimates driven entirely by the assumptions entered by the user.

Not underwriting. A lender may use different income, debt, reserve, mortgage-insurance, escrow, and eligibility rules. HomeFit does not access credit reports, verify income, determine program eligibility, or issue loan offers.

1. Mortgage principal and interest

For a fixed-rate loan, the standard fully amortizing payment formula is used:

Payment = Principal × [r(1+r)^n] ÷ [(1+r)^n − 1]

Here, r is the monthly interest rate and n is the number of monthly payments. For the simplified ARM stress mode, the payment is recalculated once after the initial fixed period using the entered stress rate and remaining loan balance. Real ARMs can have indexes, margins, adjustment frequencies, and caps that differ from this simplified model.

2. Lender-style housing expense and DTI

HomeFit calculates front-end DTI as principal, interest, property tax, homeowners insurance, HOA, and mortgage insurance divided by gross monthly income. Back-end DTI adds the user’s other monthly debt payments. The Consumer Financial Protection Bureau defines DTI as monthly debt payments divided by gross monthly income.

Back-end DTI = (Lender-style housing expense + other monthly debt) ÷ gross monthly income

The user-selected DTI target is a planning threshold, not a universal approval limit. Different loan programs, lenders, borrowers, and automated underwriting systems can produce different outcomes.

3. Full owner budget

The full owner cost adds a maintenance reserve, utilities, and other owner costs to the lender-style payment. Fannie Mae advises budgeting for maintenance and describes a broad rule of thumb of 1% to 4% of home value per year, while noting that age and condition matter. The default in HomeFit is editable.

Full owner cost = P&I + property tax + insurance + HOA + mortgage insurance + maintenance + utilities + other owner costs

4. Cash required and reserves

Cash to close includes the down payment, percentage closing costs, discount points, any upfront loan fee paid in cash, immediate repairs or furnishing, and moving costs, less entered credits. The CFPB says closing costs typically range from 2% to 5% of purchase price, excluding the down payment, but a lender Loan Estimate should replace any rough default.

Remaining liquid savings are divided by the full monthly household burn to estimate months of post-closing reserves. The reserve target is selected by the user.

5. Mortgage-insurance modeling

Mortgage insurance is calculated from the entered annual rate and outstanding loan balance. Conventional mode can end the estimate when the scheduled balance reaches 78% of the home’s original value. The CFPB explains that eligible borrowers can generally request cancellation at 80% of original value and automatic termination generally occurs at 78%, subject to requirements and exceptions.

FHA, VA, and USDA presets are editable starting assumptions. Actual fees, eligibility, loan limits, exemptions, and insurance duration must be confirmed with an approved lender and current agency guidance.

6. Safe price

The “safe price” is the highest modeled purchase price that simultaneously passes the selected:

full owner cost as a percentage of take-home income;
back-end DTI target;
cash-to-close plus emergency-reserve target; and
nonnegative monthly breathing room.

The limiting factor is whichever of cash flow, DTI, or cash reserves produces the lowest maximum price.

7. Time to afford

The timeline grows income, non-housing spending, savings, and the target home price using the entered annual assumptions. It assumes the entered mortgage rate and loan terms remain available. Because future interest rates and underwriting cannot be predicted, this is a scenario—not a forecast.

8. Rent-versus-buy wealth model

The model simulates both paths monthly. The buyer begins with savings after cash to close; the renter begins with savings after the deposit and lease fees. Each path invests any monthly cash left after income, non-housing spending, debt, and housing costs. The buyer accumulates home equity and pays estimated selling costs at the measurement date. The renter receives the security deposit back.

Buyer wealth = invested liquid balance + home value − mortgage balance − selling costs

Renter wealth = invested liquid balance + refundable security deposit

The model does not calculate investment taxes, capital-gains exclusions, depreciation, transaction-specific tax treatment, refinancing, renovation value, rent concessions, or the value of flexibility and housing stability.

9. Taxes

The homeowner tax-benefit input defaults to zero. IRS rules depend on loan details, filing status, itemization, applicable limits, and current law. HomeFit does not determine whether mortgage interest, points, or property taxes create an incremental tax benefit.

Official research sources

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