This calculator provides an estimated maximum loan amount you might be approved for based on your income, debts, and down payment. It's a preliminary tool and not a guarantee of loan approval.
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Understanding Your Mortgage Pre-Approval Estimate
Obtaining a mortgage pre-approval is a crucial step in the home-buying process. It gives you a realistic idea of how much a lender might be willing to lend you, strengthens your offer to sellers, and helps you focus your home search within your budget. This calculator provides an estimated maximum loan amount you may qualify for, helping you understand your borrowing potential.
How the Estimate is Calculated
Lenders use several key factors to determine how much you can borrow, primarily focusing on your ability to repay the loan. This calculator uses a simplified model that considers your Debt-to-Income (DTI) ratio. A common guideline used by lenders is that your total monthly debt obligations (including the potential mortgage payment) should not exceed a certain percentage of your gross monthly income. Two common DTI ratios are:
Front-End DTI (Housing Ratio): This ratio compares your potential total housing costs (principal, interest, taxes, insurance – PITI) to your gross monthly income. A typical target is 28% or lower.
Back-End DTI (Total Debt Ratio): This ratio compares your total monthly debt payments (including PITI and all other debts) to your gross monthly income. A typical target is 36% to 43% or lower, though it can vary by lender and loan type.
This calculator focuses on the back-end DTI to estimate your maximum loan amount. It works by:
Determining your available income for housing: Gross Monthly Income minus your Estimated Total Monthly Debt Payments.
Applying a target maximum DTI (typically 36%-43% for this calculation). We use a conservative 36% target here for a more realistic estimate.
Calculating the maximum PITI (Principal, Interest, Taxes, Insurance) payment you could afford.
Estimating the loan amount based on this maximum PITI, the provided interest rate, and loan term. (Note: This simplified model does not explicitly factor in taxes and insurance (TI), assuming they are part of the total housing cost estimate used in the DTI, and thus indirectly accounted for. For a true pre-approval, lenders will require detailed estimates for TI.)
The formula used:
Maximum Affordable PITI = (Gross Monthly Income * Target DTI Ratio) - Estimated Monthly Debt Payments
Then, using the PITI, interest rate, and loan term, we calculate the maximum loan amount. The monthly payment (PITI) for a loan is calculated using the loan amortization formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Monthly Payment (our calculated Maximum Affordable PITI)
P = Principal Loan Amount (what we are solving for)
n = Total Number of Payments (Loan Term in Years * 12)
We rearrange this to solve for P (Principal Loan Amount):
P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
This calculator estimates the loan amount, not the total purchase price, as it doesn't explicitly add the down payment to determine the total home value.
Important Considerations:
This is an Estimate: A formal pre-approval from a lender involves a thorough review of your credit score, financial history, employment verification, and property appraisal.
Credit Score: Your credit score significantly impacts the interest rate you'll be offered and your overall loan approval.
Closing Costs: Remember to budget for closing costs, which are separate from the down payment.
Property Taxes & Homeowners Insurance: These are typically added to your monthly mortgage payment (PITI). The calculator assumes these are factored into the DTI limit.
Lender Variations: Different lenders have different DTI limits and qualification criteria.
Use this tool as a starting point to understand your potential borrowing power. For accurate figures and to begin the official application process, consult with a mortgage lender.
function calculateMortgagePreApproval() {
var grossMonthlyIncome = parseFloat(document.getElementById("grossMonthlyIncome").value);
var estimatedMonthlyDebt = parseFloat(document.getElementById("estimatedMonthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var estimatedInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var loanTermYears = parseInt(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
resultDiv.classList.add("hidden");
resultDiv.innerHTML = "";
// Input validation
if (isNaN(grossMonthlyIncome) || grossMonthlyIncome <= 0) {
alert("Please enter a valid Gross Monthly Income.");
return;
}
if (isNaN(estimatedMonthlyDebt) || estimatedMonthlyDebt < 0) {
alert("Please enter a valid Estimated Total Monthly Debt Payments.");
return;
}
if (isNaN(downPayment) || downPayment < 0) {
alert("Please enter a valid Down Payment amount.");
return;
}
if (isNaN(estimatedInterestRate) || estimatedInterestRate <= 0) {
alert("Please enter a valid Estimated Mortgage Interest Rate.");
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please select a valid Loan Term.");
return;
}
// Using a conservative DTI target for estimating max affordability
var targetDtiRatio = 0.36; // 36% back-end DTI
// Calculate maximum affordable PITI
var maxAffordablePiti = (grossMonthlyIncome * targetDtiRatio) – estimatedMonthlyDebt;
if (maxAffordablePiti 0) {
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
maxLoanAmount = maxAffordablePiti * (numerator / denominator);
} else { // Handle 0% interest rate, though unlikely for mortgages
maxLoanAmount = maxAffordablePiti * numberOfPayments;
}
// The result is the estimated maximum loan amount
var estimatedPurchasePrice = maxLoanAmount + downPayment;
var formattedMaxLoan = maxLoanAmount.toLocaleString(undefined, { minimumFractionDigits: 0, maximumFractionDigits: 0 });
var formattedDownPayment = downPayment.toLocaleString(undefined, { minimumFractionDigits: 0, maximumFractionDigits: 0 });
var formattedPurchasePrice = estimatedPurchasePrice.toLocaleString(undefined, { minimumFractionDigits: 0, maximumFractionDigits: 0 });
resultDiv.innerHTML = "Estimated Maximum Loan Amount: $" + formattedMaxLoan + "" +
"Estimated Purchase Price (Loan + Down Payment): $" + formattedPurchasePrice + "" +
"(Assumes a 36% DTI ratio and does not include closing costs or PMI.)";
resultDiv.style.backgroundColor = "var(–success-green)"; // Back to green for success
resultDiv.classList.remove("hidden");
}