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, based on your financial situation. This calculator provides an *estimated* pre-approval amount, serving as a helpful guide. It is not a guarantee of loan approval.
How It Works: Key Factors
Lenders assess your ability to repay a loan by considering several key financial metrics. This calculator incorporates the most common ones:
Annual Household Income: Your total gross income from all sources. Lenders use this to determine how much income you have available to cover a mortgage payment.
Estimated Credit Score: Your credit score significantly impacts the interest rates you'll be offered and your overall loan eligibility. Higher scores generally lead to better terms and higher borrowing potential.
Existing Monthly Debt Payments: This includes all recurring debts like car loans, student loans, and credit card minimum payments. Lenders calculate your Debt-to-Income Ratio (DTI), which is a critical factor. A common guideline is that your total monthly debt payments (including the potential mortgage) should not exceed 43% of your gross monthly income.
Down Payment: A larger down payment reduces the loan amount needed, which can increase your borrowing power for the remaining price and may also secure better loan terms.
Loan Term & Interest Rate: The length of the loan (term) and the interest rate directly affect your monthly payment. While this calculator uses these to estimate potential loan amounts, in a real pre-approval, these are determined by the lender based on market conditions and your profile.
The Calculation (Simplified)
This calculator uses a simplified approach to estimate your maximum affordable monthly mortgage payment. It's based on a common lender guideline for the front-end DTI ratio, often around 28% of your gross monthly income, and then factors in your existing debts to ensure the back-end DTI ratio (total debt) stays within acceptable limits.
Here's a breakdown of the simplified logic:
Calculate Gross Monthly Income: Annual Income / 12
Estimate Maximum Affordable Monthly Payment (Front-End DTI): Gross Monthly Income * 0.28 (This is a common benchmark, but can vary by lender).
Calculate Available Monthly Payment for Mortgage (Back-End DTI): (Gross Monthly Income * 0.43) – Existing Monthly Debt Payments (This ensures total debt is within ~43%).
Determine Actual Maximum Monthly P&I: The lower of the two amounts calculated in steps 2 and 3.
Estimate Loan Amount: Using a standard mortgage payment formula (or an approximation based on the monthly payment, interest rate, and loan term), we work backward to find the principal loan amount you could afford. The formula used is an approximation derived from:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]`
where M is the monthly payment, P is the principal loan amount, i is the monthly interest rate, and n is the total number of payments (loan term in years * 12). We rearrange this to solve for P.
Total Estimated Borrowing Power: Estimated Loan Amount + Down Payment
Important Considerations:
PMI/MIP: If your down payment is less than 20%, Private Mortgage Insurance (PMI) or a similar government-backed insurance (MIP) will likely be required, increasing your monthly payment. This calculator does not include PMI.
Property Taxes & Homeowners Insurance (PITI): Your actual mortgage payment will include Principal, Interest, Taxes, and Insurance. This calculator primarily focuses on the Principal & Interest (P&I) portion and uses DTI limits that often implicitly account for PITI, but actual amounts vary greatly by location and property.
Lender Specifics: Different lenders have different DTI limits, credit score requirements, and underwriting guidelines.
Other Fees: Closing costs, points, and other lender fees are not factored into this pre-approval estimate.
Use this tool as a starting point for your home-buying journey. For an official pre-approval, consult with a mortgage lender.
function calculatePreApproval() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var creditScore = parseFloat(document.getElementById("creditScore").value);
var existingMonthlyDebt = parseFloat(document.getElementById("debtToIncomeRatio").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var loanTermYears = parseInt(document.getElementById("loanTermYears").value);
var annualInterestRate = parseFloat(document.getElementById("interestRate").value);
var resultDiv = document.getElementById("result");
resultDiv.style.display = 'none'; // Hide previous result
// Input validation
if (isNaN(annualIncome) || annualIncome <= 0 ||
isNaN(creditScore) || creditScore <= 0 ||
isNaN(existingMonthlyDebt) || existingMonthlyDebt < 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(loanTermYears) || loanTermYears <= 0 ||
isNaN(annualInterestRate) || annualInterestRate = 100) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
resultDiv.style.backgroundColor = '#dc3545'; // Error red
resultDiv.style.display = 'block';
return;
}
var grossMonthlyIncome = annualIncome / 12;
var monthlyInterestRate = annualInterestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
// — Simplified DTI based calculations —
// Front-end DTI target (e.g., 28% for PITI, we'll estimate P&I here)
var maxMonthlyPaymentTarget1 = grossMonthlyIncome * 0.28;
// Back-end DTI target (e.g., 43% for all debts including P&I)
var maxTotalDebtPayment = grossMonthlyIncome * 0.43;
var availableForMortgagePAndI = maxTotalDebtPayment – existingMonthlyDebt;
// The actual maximum monthly P&I payment the borrower can afford
var maxMonthlyPAndI = Math.min(maxMonthlyPaymentTarget1, availableForMortgagePAndI);
if (maxMonthlyPAndI 0) {
estimatedLoanAmount = maxMonthlyPAndI * (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments));
} else { // Handle 0% interest rate scenario, though unlikely for mortgages
estimatedLoanAmount = maxMonthlyPAndI * numberOfPayments;
}
var totalEstimatedBorrowingPower = estimatedLoanAmount + downPayment;
// Adjust for credit score impact (simplified)
var creditScoreFactor = 1.0;
if (creditScore < 620) {
creditScoreFactor = 0.85; // Lower borrowing power for lower scores
} else if (creditScore < 680) {
creditScoreFactor = 0.95;
} else if (creditScore < 720) {
creditScoreFactor = 1.05;
} else if (creditScore < 760) {
creditScoreFactor = 1.15;
} else {
creditScoreFactor = 1.20; // Higher borrowing power for excellent scores
}
var adjustedBorrowingPower = totalEstimatedBorrowingPower * creditScoreFactor;
// Ensure borrowing power is not negative and round appropriately
adjustedBorrowingPower = Math.max(0, adjustedBorrowingPower);
var formattedBorrowingPower = adjustedBorrowingPower.toLocaleString(undefined, { style: 'currency', currency: 'USD', minimumFractionDigits: 0, maximumFractionDigits: 0 });
resultDiv.innerHTML = "Estimated Pre-Approval Amount: " + formattedBorrowingPower +
"(Based on estimated income, debts, credit score, and market rates)";
resultDiv.style.backgroundColor = 'var(–success-green)'; // Reset to success green
resultDiv.style.display = 'block';
}