This is an estimate for prequalification purposes only and does not guarantee loan approval.
What is Mortgage Prequalification?
Mortgage prequalification is an initial step in the home buying process where a lender provides an estimate of how much you might be able to borrow based on preliminary information you provide. Unlike pre-approval, prequalification is generally not based on a full credit check and is a less formal assessment. It helps you understand your potential borrowing capacity and set a realistic budget for your home search.
How Does This Calculator Work?
This calculator provides an estimated maximum loan amount by applying common lender guidelines for debt-to-income (DTI) ratios and considering your input parameters. Lenders typically look at two DTI ratios:
Front-end DTI (Housing Ratio): The percentage of your gross monthly income that would go towards your total housing costs (principal, interest, property taxes, homeowner's insurance, and HOA dues). A common guideline is for this to be no more than 28%.
Back-end DTI (Total Debt Ratio): The percentage of your gross monthly income that would go towards all your monthly debt obligations, including your potential mortgage payment, credit cards, car loans, student loans, etc. A common guideline is for this to be no more than 36%.
For simplicity, this calculator focuses on the back-end DTI and assumes a maximum allowable housing payment that allows for principal, interest, taxes, and insurance (PITI), using the provided interest rate and loan term. It calculates the maximum loan amount you could qualify for before considering specific property taxes and insurance, as these vary by location.
Calculation Logic:
Calculate Maximum Allowable Monthly Debt Payment:
This is determined by multiplying your Gross Monthly Income by the acceptable Back-end DTI ratio (commonly 36%, but can vary).
Max Allowable Monthly Debt = Gross Monthly Income * Back-end DTI Ratio
Calculate Monthly Payment for Existing Debts:
This is the sum of your Total Monthly Debt Payments (excluding mortgage).
Calculate Maximum Allowable Monthly Mortgage Payment:
Subtract your existing monthly debt payments from the maximum allowable monthly debt.
Max Allowable Mortgage Payment = Max Allowable Monthly Debt - Total Monthly Debt Payments
Calculate Maximum Loan Amount:
Using the Max Allowable Mortgage Payment, the Estimated Annual Interest Rate, and the Loan Term (Years), we calculate the loan amount using the mortgage payment formula in reverse. The monthly interest rate is (Annual Rate / 12) and the number of payments is (Loan Term * 12).
The standard mortgage payment formula is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Monthly Payment
P = Principal Loan Amount
i = Monthly Interest Rate (Annual Rate / 12)
n = Total Number of Payments (Loan Term in Years * 12)
To find P (Principal Loan Amount), we rearrange the formula:
P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
The Down Payment is added to the calculated maximum loan amount to provide a rough estimate of the maximum home price you might afford, though this calculator specifically shows the maximum loan amount based on income and debt.
Important Considerations:
Lender Guidelines Vary: This calculator uses common DTI ratios. Actual lender requirements can differ significantly based on the lender, loan program, borrower's credit score, and market conditions.
Credit Score: Prequalification often doesn't involve a hard credit pull, but your actual loan approval will heavily depend on your credit history and score.
Property Taxes and Insurance: These costs are not included in the primary calculation but are a significant part of your total monthly housing expense and will affect your final affordability.
Other Fees: Closing costs, private mortgage insurance (PMI) if your down payment is less than 20%, and other loan-related fees are not factored into this basic estimate.
Pre-approval vs. Prequalification: For a more accurate picture and to show sellers you're serious, pursue a mortgage pre-approval, which involves a more thorough financial review by the lender.
Use this calculator as a starting point to understand your potential borrowing power. Consult with a mortgage professional for personalized advice and accurate figures.
function calculatePrequalification() {
var grossMonthlyIncome = parseFloat(document.getElementById("grossMonthlyIncome").value);
var monthlyDebtPayments = parseFloat(document.getElementById("monthlyDebtPayments").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var estimatedInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var maxLoanAmount = 0;
var resultDiv = document.getElementById("result");
var maxLoanAmountSpan = document.getElementById("maxLoanAmount");
// Clear previous results and hide
maxLoanAmountSpan.textContent = "$0";
resultDiv.style.display = "none";
// Input validation
if (isNaN(grossMonthlyIncome) || grossMonthlyIncome <= 0 ||
isNaN(monthlyDebtPayments) || monthlyDebtPayments < 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(estimatedInterestRate) || estimatedInterestRate <= 0 ||
isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please enter valid positive numbers for all fields.");
return;
}
// Lender ratios (common guidelines)
var backEndDTIRatio = 0.36; // 36%
// Calculate maximum allowable monthly debt payment
var maxAllowableMonthlyDebt = grossMonthlyIncome * backEndDTIRatio;
// Calculate maximum allowable monthly mortgage payment
var maxAllowableMortgagePayment = maxAllowableMonthlyDebt – monthlyDebtPayments;
// Ensure the allowable mortgage payment is positive
if (maxAllowableMortgagePayment <= 0) {
maxLoanAmountSpan.textContent = "$0";
resultDiv.style.display = "block";
return;
}
// Calculate mortgage details
var monthlyInterestRate = (estimatedInterestRate / 100) / 12;
var numberOfPayments = loanTermYears * 12;
// Calculate maximum loan amount using the reverse mortgage formula
// P = M * [ (1 + i)^n – 1] / [ i(1 + i)^n ]
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
if (denominator === 0) { // Avoid division by zero if interest rate is effectively zero
maxLoanAmount = 0;
} else {
maxLoanAmount = maxAllowableMortgagePayment * (numerator / denominator);
}
// Format the result
var formattedMaxLoanAmount = maxLoanAmount.toLocaleString('en-US', { style: 'currency', currency: 'USD', minimumFractionDigits: 0, maximumFractionDigits: 0 });
maxLoanAmountSpan.textContent = formattedMaxLoanAmount;
resultDiv.style.display = "block";
}