Estimate the maximum home price you might qualify for based on your financial inputs.
Your estimated maximum home price will appear here.
Understanding Home Prequalification
Home prequalification is a crucial first step in the home buying process. It provides an estimate of how much a lender might be willing to lend you, based on preliminary information about your finances. This is not a loan commitment or a guarantee of approval, but rather an educated guess to help you set a realistic budget for your home search.
How the Prequalification Calculator Works
This calculator uses a simplified approach to estimate your borrowing capacity. Lenders typically use a "debt-to-income" (DTI) ratio to assess your ability to manage mortgage payments. There are generally two DTI thresholds considered:
Front-end DTI (Housing Ratio): This ratio compares your proposed monthly housing expenses (principal, interest, property taxes, and homeowner's insurance – often called PITI) to your gross monthly income. A common guideline is that this should not exceed 28%.
Back-end DTI (Total Debt Ratio): This ratio compares your total monthly debt obligations (including the proposed housing expenses and all other recurring debts like car loans, student loans, and credit card minimum payments) to your gross monthly income. A common guideline is that this should not exceed 36%.
Our calculator helps estimate the maximum loan amount you might qualify for by working backward from these DTI limits.
The Calculation Logic:
1. Calculate Maximum Allowable Monthly Housing Payment (PITI):Max PITI = Gross Monthly Income * Front-end DTI Ratio (e.g., 0.28)
2. Calculate Existing Monthly Debt Payments:Existing Monthly Debts = Estimated Monthly Debt Payments
3. Calculate Maximum Allowable Total Monthly Debt Payment:Max Total Debt = Gross Monthly Income * Back-end DTI Ratio (e.g., 0.36)
4. Calculate Maximum Allowable Monthly Payment for New Mortgage (Principal & Interest):
This is the PITI amount minus your estimated taxes and insurance.
Max P&I = Max PITI - (Estimated Annual Property Tax / 12) - (Estimated Annual Homeowner's Insurance / 12)
5. Calculate Estimated Monthly Property Tax and Insurance:Monthly Property Tax = Estimated Annual Property Tax / 12Monthly Home Insurance = Estimated Annual Homeowner's Insurance / 12
6. Calculate Maximum Allowable Loan Amount:
This involves using a mortgage payment formula (present value of an annuity) in reverse.
The formula for monthly mortgage payment (P&I) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Monthly Payment (our Max P&I)
P = Principal Loan Amount (what we want to find)
i = Monthly Interest Rate (Annual Rate / 12 / 100)
n = Total Number of Payments (Loan Term in Years * 12)
Rearranging to solve for P:
P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]Max Loan Amount = Max P&I * [ (1 + monthlyInterestRate)^totalPayments - 1 ] / [ monthlyInterestRate * (1 + monthlyInterestRate)^totalPayments ]
7. Calculate Estimated Maximum Home Price:
This is the maximum loan amount plus your down payment.
Estimated Maximum Home Price = Max Loan Amount + Down Payment Amount
Important Considerations:
This calculator provides an *estimate*. Actual loan approval depends on a lender's full underwriting process, including credit score, employment history, assets, and specific loan programs.
The DTI ratios (28%/36%) used are common guidelines but can vary significantly by lender and loan type (e.g., FHA, VA loans may have different ratios).
Costs like Private Mortgage Insurance (PMI), HOA fees, or potential special assessments are not included in this simplified calculation.
Always consult with a mortgage professional or lender for accurate pre-approval and to understand all associated costs.
var calculatePrequalification = function() {
var grossMonthlyIncome = parseFloat(document.getElementById("grossMonthlyIncome").value);
var estimatedMonthlyDebt = parseFloat(document.getElementById("estimatedMonthlyDebt").value);
var downPaymentAmount = parseFloat(document.getElementById("downPaymentAmount").value);
var estimatedAnnualPropertyTax = parseFloat(document.getElementById("estimatedAnnualPropertyTax").value);
var estimatedAnnualHomeInsurance = parseFloat(document.getElementById("estimatedAnnualHomeInsurance").value);
var estimatedInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
// Input validation
if (isNaN(grossMonthlyIncome) || grossMonthlyIncome <= 0 ||
isNaN(estimatedMonthlyDebt) || estimatedMonthlyDebt < 0 ||
isNaN(downPaymentAmount) || downPaymentAmount < 0 ||
isNaN(estimatedAnnualPropertyTax) || estimatedAnnualPropertyTax < 0 ||
isNaN(estimatedAnnualHomeInsurance) || estimatedAnnualHomeInsurance < 0 ||
isNaN(estimatedInterestRate) || estimatedInterestRate <= 0 ||
isNaN(loanTermYears) || loanTermYears <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
// Define DTI ratios (common guidelines)
var frontEndDtiRatio = 0.28;
var backEndDtiRatio = 0.36;
// Calculations
var monthlyPropertyTax = estimatedAnnualPropertyTax / 12;
var monthlyHomeInsurance = estimatedAnnualHomeInsurance / 12;
var maxAllowablePiti = grossMonthlyIncome * frontEndDtiRatio;
var maxAllowableTotalDebt = grossMonthlyIncome * backEndDtiRatio;
// Maximum P&I payment allowed is the max PITI minus monthly taxes and insurance
var maxPiPayment = maxAllowablePiti – monthlyPropertyTax – monthlyHomeInsurance;
// Ensure maxPiPayment is not negative
if (maxPiPayment 0) {
var numerator = Math.pow(1 + monthlyInterestRate, loanTermMonths) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, loanTermMonths);
maxLoanAmount = maxPiPayment * (numerator / denominator);
} else { // Handle 0% interest rate case (though unlikely for mortgages)
maxLoanAmount = maxPiPayment * loanTermMonths;
}
// Total estimated maximum home price
var estimatedMaxHomePrice = maxLoanAmount + downPaymentAmount;
// Additional check for total debt ratio
// Calculate potential total debt if this loan is taken
var potentialTotalMonthlyDebt = estimatedMonthlyDebt + maxPiPayment + monthlyPropertyTax + monthlyHomeInsurance;
if (potentialTotalMonthlyDebt > maxAllowableTotalDebt) {
// If max P&I would push total debt over limit, we need to reduce the P&I payment allowed.
// This means the max loan amount would be lower.
// For simplicity in prequalification, we'll indicate this limitation.
// A more complex calculator could iteratively reduce P&I.
resultDiv.innerHTML = "Based on your total estimated debts, you may exceed the recommended total debt-to-income ratio (36%). Your estimated maximum home price might be lower than initially calculated. Please consult a lender.";
// We can still show the calculated price as a high-end estimate, but with a warning.
resultDiv.innerHTML += "Estimated Maximum Home Price: $" + estimatedMaxHomePrice.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",") + " (Potential Debt Ratio Exceeded)";
return;
}
// Display result
resultDiv.innerHTML = "Estimated Maximum Home Price: $" + estimatedMaxHomePrice.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",") + "";
};