Mortgage Pre-Qualification Calculator – NerdWallet


Mortgage prequalification is an informal assessment of your creditworthiness and the home price you can afford based on information such as your credit, debt, income, and assets. The pre-qualification indicates if you meet the minimum requirements for a loan and what the amount of this loan can be. This is not a binding agreement from the lender, however; you will need to submit more supporting documents before receiving an official offer.

Prequalification is an important step for those who are unsure if they are financially ready to become a homeowner. If you are confident in your finances or have already been prequalified, you may want to Get pre-approved In place.

How to use the pre-qualification calculator

Our prequalification calculator can give you an idea of ​​what to expect before speaking to a lender. All we need is some information about you and your finances:

  1. Enter your annual income before taxes.

  2. Enter the term of the mortgage you are considering.

  3. Tell us about your professional situation.

  4. Tell us if you have a deposit.

  5. Tell us about past foreclosures or bankruptcies.

  6. Enter your monthly recurring debt payments.

After completing each required field, you will see the loan amount we recommend, as well as a higher loan amount. We show two pre-qualification amounts because:

  1. Different loans have different debt-to-income ratio requirements. For example, conventional loans generally have stricter DTI requirements than FHA loans, which are insured by the Federal Housing Administration.

  2. It is not always wise to borrow 100% of what a lender offers. The maximum loan amount is the maximum the lender is willing to lend you, not what makes sense for your budget. A higher loan amount will result in a higher monthly mortgage payment. Borrowing too much could make it difficult to cope with unexpected financial difficulties, such as job loss or a large medical bill.

What is behind the pre-qualification calculation?

The debt to income ratioor DTI, is a common formula that lenders use for mortgage prequalification, and it comes in two varieties: front-end and back-end.

The initial DTI is the dollar amount of your home-related expenses, including future monthly mortgage payment, property taxes, insurance, and homeowners association fees, divided by your gross monthly income.

Your final DTI ratio is the sum of your home-related expenses plus all your other monthly debts — including credit cards, student loans, personal loans, and car loans — divided by your gross monthly income. Conventional mortgage lenders generally prefer a final DTI ratio of 36% or less, but government-backed lending programs may allow a higher percentage.

NerdWallet’s Pre-Qualification Calculator looks at back-end DTI while considering other aspects of your credit profile, such as employment, credit score, and down payment.

What is the difference between pre-qualification and pre-approval?

Unlike pre-qualification, pre-approval requires proof of your debt, income, assets, credit rating, and history.

To get pre-approved, you will provide documents such as pay stubs, tax records, and proof of assets. Once the lender has verified your financial information, which may take a few days, they must provide a pre-approval letter that you can show to a real estate agent or seller to prove that you are ready and able to buy. a house.

Keep in mind that pre-qualification does not guarantee pre-approval. You can still be denied if your financial documents do not support the figures you have declared.

Does pre-qualification affect your credit score?

Being pre-qualified does not affect your credit score. Lenders generally base prequalification on the information you provide and do not pull your credit report.

When a lender checks your credit report, it counts as a “meaningful investigation.” Too many serious inquiries can lower your credit score if they reveal that you are trying to open many new lines of credit in a short time. But multiple tough inquiries in a short period of time as a result of mortgage rate research usually doesn’t hurt your credit score.

How to increase your pre-qualification amount

Pre-qualifying can help you set a realistic budget and get you ready to start house hunting. You could prequalify for a larger loan and expand your options if you:

  • Improve your credit score: Three ways to do this quickly include correcting errors on your credit report, using a lower credit limit, and paying bills on time and in full each month.

  • Consolidate or pay off debts: If you have high-interest debt spread over several credit cards, consolidation will reduce your monthly debt payments. Eliminating debt completely, through larger or more frequent payments, is even better. Reducing expenses and following a budget will help.

  • Increase your income: A higher gross income will improve your DTI ratio (especially if your debt remains the same) and may qualify you for a larger loan amount. You may be able to achieve this by asking for a raise or start a secondary agitation.

Making the Most of Your Pre-Qualification Limit

In addition to qualifying for a larger mortgage, there are other ways to make homeownership more affordable.

  • Be flexible on your location: It simply costs more to buy in some areas than in others. If you’re willing to compromise on certain items on your neighborhood wish list, you can open up new options for affordable homes.

  • Renovate a home that isn’t perfect: While it’s not for everyone, the repairman route can be a solid choice for borrowers who are struggling to afford a move-in-ready home in the area of ​​their choice. There are even loan options that allow borrowers to build renovation costs into their mortgage, like Freddie Mac’s. CHOICERenovation loan.

You can also improve affordability by exploring loans with little or no down payment terms. This means you can keep more of your savings, which can come in handy for the unexpected costs of home ownership.

How long does it take to be prequalified for a mortgage loan?

Because this is an informal, non-binding assessment, you can be pre-qualified in a day or two, sometimes less. Depending on the lender, prequalification can take place in person, over the phone, or online.

Frequently Asked Questions

NerdWallet subscribes to the 28/36 rule of thumb, which means that your mortgage payment should not exceed 28% of your gross income, and all of your monthly debts (including your mortgage payment) should not be more than 36%. % of your gross income.

Using the rule that your mortgage payment should not exceed 28% of your gross income, you should try to keep your monthly mortgage payment below $4,666 if your household income is $200,000 per year. If your monthly debts plus $4,666 are more than 36% of your gross income, you’ll either need to reduce your monthly debts, put down a bigger down payment, or aim for a cheaper home.

There are so many things at play that can determine a home’s affordability, and everyone’s financial situation is unique. NerdWallet’s mortgage payment calculationr can help you figure out what your monthly payments would be if you bought a $400,000 home, and it shows how that figure changes based on factors like your down payment and property taxes. Ideally, this monthly payment should be less than 28% of your gross income.


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