Estimate your potential borrowing capacity based on your income and debts.
Your estimated maximum loan amount will appear here.
Understanding Your Pre-Qualification Estimate
What is a Pre-Qualification Estimate?
A pre-qualification estimate is an initial assessment of how much you might be able to borrow. It's typically based on a quick review of your income, existing debts, and a general idea of interest rates and loan terms. This is NOT a loan commitment, but rather a helpful tool to understand your potential borrowing power and budget for a home purchase.
How is the Estimate Calculated?
This calculator provides an estimate using a common financial guideline that lenders often consider: the Debt-to-Income (DTI) ratio. While specific lender criteria can vary, a general rule of thumb is that your total monthly debt obligations (including the potential new mortgage payment) should not exceed a certain percentage of your gross monthly income.
The calculation generally involves these steps:
Calculate Gross Monthly Income: This is your income before taxes and other deductions.
Calculate Existing Monthly Debt Payments: This includes minimum payments for credit cards, auto loans, student loans, personal loans, and any other recurring debts.
Determine Available Income for Housing: This is typically calculated by subtracting your existing monthly debt payments from your gross monthly income. A common guideline is that this available income should cover your new mortgage payment (principal, interest, taxes, and insurance – PITI), plus a buffer.
Estimate Maximum PITI Payment: Based on the available income and a target DTI, we can estimate the maximum monthly housing payment you might afford.
Calculate Maximum Loan Amount: Using the estimated maximum PITI payment, the desired loan term, and the estimated interest rate, we can work backward to find the maximum loan amount. The formula used is derived from the standard mortgage payment formula:
Mortgage Payment Formula: \( M = P \frac{r(1+r)^n}{(1+r)^n – 1} \)
Where:
\( M \) = Monthly Payment (PITI)
\( P \) = Principal Loan Amount (what we're solving for)
\( n \) = Total number of payments (Loan Term in Years * 12)
Rearranging this formula to solve for \( P \) (the loan amount) gives us:
Maximum Loan Amount \( P \): \( P = M \frac{(1+r)^n – 1}{r(1+r)^n} \)
Important Considerations:
This is an Estimate: Lenders will conduct a full underwriting process, which includes reviewing your credit score, employment history, assets, and other factors.
DTI Ratios Vary: Different loan types (FHA, VA, conventional) and individual lender policies have different DTI limits. Common thresholds range from 36% to 45%, but can sometimes be higher. This calculator uses a common approach to give you a general idea.
PITI: The estimate assumes a target monthly payment that includes Principal, Interest, Taxes, and Insurance (PITI). Property taxes and homeowner's insurance costs vary significantly by location and property type.
Credit Score: Your credit score is a major factor in loan approval and interest rates offered.
Down Payment: This calculator does NOT factor in a down payment. Your actual purchase price will be the loan amount plus your down payment.
Use this calculator as a starting point to understand your financial picture and prepare for conversations with mortgage lenders.
function calculatePreQualification() {
var monthlyIncome = parseFloat(document.getElementById("monthlyIncome").value);
var monthlyDebtPayments = parseFloat(document.getElementById("monthlyDebtPayments").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var estimatedInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var resultDiv = document.getElementById("result");
if (isNaN(monthlyIncome) || monthlyIncome <= 0 ||
isNaN(monthlyDebtPayments) || monthlyDebtPayments < 0 ||
isNaN(loanTermYears) || loanTermYears <= 0 ||
isNaN(estimatedInterestRate) || estimatedInterestRate <= 0) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
// General guideline for maximum monthly housing payment (PITI)
// A common DTI target is around 36-45% of gross income,
// but this needs to cover existing debts PLUS the new housing payment.
// Let's estimate the maximum allowable total debt payment first.
// We'll use a slightly conservative DTI for total debt, e.g., 45%
var maxTotalDebtPayment = monthlyIncome * 0.45;
var maxHousingPayment = maxTotalDebtPayment – monthlyDebtPayments;
if (maxHousingPayment 0 && numberOfPayments > 0) {
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
maxLoanAmount = maxHousingPayment * (numerator / denominator);
} else if (monthlyInterestRate === 0 && numberOfPayments > 0) {
// Handle 0% interest rate case (though unlikely for mortgages)
maxLoanAmount = maxHousingPayment * numberOfPayments;
}
// Format the result
var formattedMaxLoanAmount = maxLoanAmount.toLocaleString(undefined, {
minimumFractionDigits: 0,
maximumFractionDigits: 0
});
resultDiv.innerHTML = "Estimated Maximum Loan Amount: $" + formattedMaxLoanAmount + "";
resultDiv.innerHTML += "This estimate is based on a maximum total debt-to-income ratio of approximately 45% and does NOT include down payment, property taxes, or homeowner's insurance.";
}