Estimate your potential borrowing capacity based on your financial inputs. This is for informational purposes only and not a guarantee of loan approval.
Estimated Borrowing Capacity:
$0
Understanding Your Pre-Qualification Estimate
A pre-qualification estimate is a preliminary assessment of how much you might be able to borrow. It helps you understand your potential borrowing power before you formally apply for a loan. This calculator provides an estimate based on key financial factors that lenders typically consider.
How the Estimate is Calculated:
This calculator uses a simplified model to estimate your pre-qualification. Lenders use more complex algorithms, but this provides a good general idea. The primary factors considered are:
Annual Gross Income: This is your total income before taxes and other deductions. Lenders use this to gauge your ability to generate income to repay a loan.
Total Monthly Debt Payments: This includes all your recurring monthly obligations, such as existing loan payments (car loans, student loans), minimum credit card payments, alimony, and child support. These are subtracted from your income.
Proposed Monthly Payment: This is the estimated monthly payment for the new loan you are considering (e.g., a mortgage payment including principal, interest, taxes, and insurance, or a loan payment).
Credit Score: Your credit score is a three-digit number that represents your creditworthiness. A higher score generally indicates a lower risk to lenders, potentially allowing for higher borrowing amounts or better terms.
Key Ratios Lenders Consider (Simplified for this calculator):
Lenders often look at debt-to-income ratios. A common guideline is that your total housing expenses (including the proposed payment) should not exceed a certain percentage of your gross monthly income (often around 28-31% for the front-end ratio), and your total debt obligations (including the proposed payment) should not exceed another percentage (often around 36-43% for the back-end ratio).
This calculator simplifies this by calculating your disposable income after existing debts and then seeing how much of your income is left for the proposed payment. It also factors in your credit score as a general risk indicator.
Formula Explanation (Simplified Model):
Calculate Monthly Gross Income: Annual Gross Income / 12
Calculate Remaining Income After Debts: Monthly Gross Income – Total Monthly Debt Payments
Maximum Proposed Payment Estimate: This is the core of the estimation. Lenders have different limits based on credit score and loan type. A very simplified approach:
If Credit Score >= 740: Max Proposed Payment ~ 45% of Monthly Gross Income
If 670 <= Credit Score < 740: Max Proposed Payment ~ 36% of Monthly Gross Income
If Credit Score < 670: Max Proposed Payment ~ 28% of Monthly Gross Income
(These percentages are illustrative and vary significantly by lender and loan product.)
Estimated Borrowing Capacity: The difference between the "Maximum Proposed Payment Estimate" and your actual "Proposed Monthly Payment". This represents how much extra monthly payment capacity you might have, which can be loosely translated into a loan amount based on hypothetical interest rates and terms (though this calculator does not calculate a specific loan amount). This calculator focuses on the *potential capacity* to take on that proposed payment.
Important Considerations:
This is an Estimate: It does not guarantee loan approval or a specific loan amount. Lenders perform a full underwriting process.
Loan Terms Matter: The actual loan amount you can borrow depends heavily on the interest rate, loan term (e.g., 15 vs. 30 years), and type of loan.
Down Payment: This calculator does not include a down payment. A larger down payment can significantly increase your borrowing power or reduce the loan amount needed.
Other Factors: Lenders also consider employment history, assets, savings, and the specific loan product.
Use this estimate as a starting point for your financial planning. Consult with a loan officer or financial advisor for personalized advice.
function calculatePreQualification() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebtPayments = parseFloat(document.getElementById("monthlyDebtPayments").value);
var proposedMonthlyPayment = parseFloat(document.getElementById("proposedMonthlyPayment").value);
var creditScore = parseFloat(document.getElementById("creditScore").value);
var resultValueElement = document.getElementById("result-value");
var resultMessageElement = document.getElementById("result-message");
// Clear previous results and messages
resultValueElement.innerText = "$0";
resultMessageElement.innerText = "";
// Input validation
if (isNaN(annualIncome) || annualIncome <= 0 ||
isNaN(monthlyDebtPayments) || monthlyDebtPayments < 0 ||
isNaN(proposedMonthlyPayment) || proposedMonthlyPayment <= 0 ||
isNaN(creditScore) || creditScore = 740) {
maxProposedPaymentRatio = 0.45; // High credit score
} else if (creditScore >= 670) {
maxProposedPaymentRatio = 0.36; // Average credit score
} else {
maxProposedPaymentRatio = 0.28; // Lower credit score
}
var maxPossibleProposedPayment = monthlyGrossIncome * maxProposedPaymentRatio;
var potentialExtraCapacity = maxPossibleProposedPayment – proposedMonthlyPayment;
var estimatedBorrowingCapacityInDollars = 0;
var message = "";
if (potentialExtraCapacity = 740) {
hypotheticalAnnualRate = 0.055; // 5.5%
} else if (creditScore >= 670) {
hypotheticalAnnualRate = 0.065; // 6.5%
} else {
hypotheticalAnnualRate = 0.075; // 7.5%
}
var hypotheticalMonthlyRate = hypotheticalAnnualRate / 12;
var hypotheticalLoanTermYears = 30;
var hypotheticalNumberOfMonths = hypotheticalLoanTermYears * 12;
// Calculate the estimated loan principal based on the extra capacity
var calculatedLoanAmount = potentialExtraCapacity * (1 – Math.pow(1 + hypotheticalMonthlyRate, -hypotheticalNumberOfMonths)) / hypotheticalMonthlyRate;
estimatedBorrowingCapacityInDollars = Math.round(calculatedLoanAmount);
message = "This estimates your potential borrowing capacity assuming a 30-year loan term and a hypothetical interest rate based on your credit score. Actual loan amounts may vary.";
resultMessageElement.style.color = "#007bff"; // Blue for informational message
}
// Format the result with currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
resultValueElement.innerText = formatter.format(estimatedBorrowingCapacityInDollars);
resultMessageElement.innerText = message;
}