Calculate purchase price, yearly income, or price-to-income ratio from any 2 of 3 values to compare price against income in a purchase decision.
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Price To Income Ratio Formula
The price to income ratio compares a purchase price to yearly income. It is often used for housing affordability, but the same math works for any purchase measured against annual income.
- PTI = price to income ratio, in dollars per dollar
- PP = purchase price, in dollars
- YI = yearly income, in dollars per year
The calculator uses the same relationship in three ways:
- If you enter purchase price and yearly income, it calculates the price to income ratio.
- If you enter yearly income and the price to income ratio, it calculates the purchase price.
- If you enter purchase price and the price to income ratio, it calculates the yearly income needed to match that ratio.
Price To Income Ratio Reference Ranges
These ranges are general reference points. A lower ratio means the purchase price is smaller relative to income. A higher ratio means the purchase price is larger relative to income.
| Price To Income Ratio | General Meaning | Example With $80,000 Income |
|---|---|---|
| 2.0 | Purchase price is 2 times yearly income | $160,000 |
| 3.0 | Purchase price is 3 times yearly income | $240,000 |
| 4.0 | Purchase price is 4 times yearly income | $320,000 |
| 5.0 | Purchase price is 5 times yearly income | $400,000 |
Income Needed At Common Purchase Prices
| Purchase Price | Income Needed at 3.0 Ratio | Income Needed at 4.0 Ratio | Income Needed at 5.0 Ratio |
|---|---|---|---|
| $250,000 | $83,333 | $62,500 | $50,000 |
| $400,000 | $133,333 | $100,000 | $80,000 |
| $600,000 | $200,000 | $150,000 | $120,000 |
Example Problems
Example 1: Calculate the price to income ratio
You have a purchase price of $350,000 and yearly income of $100,000.
The price to income ratio is 3.5. The purchase price is 3.5 times yearly income.
Example 2: Calculate yearly income
You have a purchase price of $450,000 and want a price to income ratio of 4.0.
The yearly income needed is $112,500.
FAQ
What does a price to income ratio of 4 mean?
A price to income ratio of 4 means the purchase price is 4 times yearly income. For example, if yearly income is $90,000, a ratio of 4 equals a purchase price of $360,000.
Is a lower price to income ratio better?
A lower ratio usually means the purchase is more affordable relative to income. It does not include debt, interest rates, taxes, insurance, savings, or other costs. For housing, those costs can change affordability a lot.
Does this ratio use gross income or net income?
The calculator uses the yearly income amount you enter. Many comparisons use gross yearly income before taxes. If you want a stricter view of affordability, you can enter net income after taxes instead.
