Mortgage Pre-Approval Calculator 2023
|Is your credit score greater than 620?
|Are you saving for a down payment?
|Have you been employed for the past 2 years as a full-time employee?
|Have you been bankrupt in the past 4 years or foreclosed in the last 7 years?
What You Should Know
- This Mortgage Pre-Approval Calculator helps you estimate your pre-approval amount based on your income and financial situation.
- Lenders look at income, debts, down payment, credit score, employment history, and bankruptcy history to determine whether you are eligible for pre-approval.
- Your pre-approval amount is determined by your combined debt-to-income ratio, which must not exceed 43% for conventional loans.
- Some government-backed loans may allow the combined debt-to-income ratio to reach 45%.
How to Calculate Mortgage Pre-Approval Amount
Lenders closely look at your Debt-to-Income Ratio when determining mortgage pre-approval amount. If your financial situation is good enough to get pre-approved for a mortgage, the DTI ratio will be the main factor that affects your pre-approval amount. The maximum allowed DTI for a conventional loan is 43%, which means that a lender cannot approve a loan requiring monthly payments to be over 43% of your gross income. Some government-backed loans may have a maximum DTI ratio limit of 45%.
DTI ratio is estimated with all current debt payments you currently have. For example, if you have a car loan and some credit card debt, you may not be able to get as large a mortgage pre-approval amount as if you did not have any debt. You can estimate your current DTI ratio below.
Estimate Your DTI Ratio for Mortgage Pre-Approval
Our mortgage pre-approval calculator can help you estimate your mortgage pre-approval amount. The results are based on your current income, required debt payments, the length of your loan, and the interest rate for your loan. The following list describes how this mortgage pre-approval calculator uses the inputs:
- Annual Gross Household Income
Lenders look at your income before taxes to estimate your DTI ratio and maximum loan amount. If you are getting a mortgage by yourself, you should input your individual income. If you are getting a mortgage with a co-signer, you should account for both incomes.
- Monthly Debt Expenses
Higher monthly debt payments increase your DTI and lower the mortgage pre-approval amount. If you are getting a mortgage by yourself, you should input your personal debt obligations. If you are getting a mortgage with a co-signer, you should account for all debt payments you and your cosigner are responsible for.
- Length of Loan
The longer the loan, the lower your monthly mortgage payments, which allows you to be pre-approved for a larger mortgage amount. Typically, mortgages have a loan term of 15 or 30 years. You can be pre-approved for a larger mortgage principal if you choose a longer loan term.
- Interest Rate
This input refers to the annualized interest rate (APR) that needs to be paid over the lifetime of the loan. The higher the interest rate, the higher your monthly mortgage payments. High interest rates will lower your mortgage pre-approval amount because interest rates affect your mortgage payments and DTI ratio.
What Income Do I Need for a Mortgage?
This section provides you with the tables of sets of annual gross incomes needed to get pre-approved for a specific mortgage amount at a certain interest rate and loan term. The following metrics are only estimations, and they do not guarantee that a lender will pre-approve you for a certain amount. The tables assume that you do not have any other debt payments and that your DTI ratio will be equal to 43% after the origination of the loan.
Annual Gross Income Needed for
Annual Gross Income Needed for
How Much Can I Get Pre-Approved For?
The amount a lender can pre-approve you for depends on multiple factors such as your income, your current DTI ratio, loan term, and interest rate. In addition to that, a lender will consider your pre-approval only in the case if:
- Your credit score is above 620,
- You have money for the down payment,
- You have proof of stable employment history,
- You have not declared bankruptcy or foreclosed on your home within the last 4 and 7 years respectively.
Another condition that should be satisfied is that your monthly debt payments should not exceed 43% of your monthly gross income. If all the mentioned requirements are met, the lender can do the following calculations to determine how much they can pre-approve you.
First, they need to calculate how much you can add to your monthly debt payments to keep your DTI ratio under 43%. Your DTI equals monthly debt payments divided by monthly gross income. Using this simple formula, the lender can calculate your maximum monthly debt payments as follows:
When the lender knows the maximum monthly debt payments you can make while keeping your DTI at 43%, the lender needs to subtract your current monthly debt payments to find your monthly mortgage payments.
The monthly mortgage payments found are the maximum fixed monthly payments on a loan a lender can pre-approve you for. Based on this number, the lender can calculate the loan value they can provide using the following formula.
Using the steps outlined above, you can calculate how much you may be pre-approved for. If you are looking to estimate how much you need to earn to be pre-approved for a specific mortgage amount, the following section discusses how much you need to earn to be pre-approved for various mortgage loans.
How to Increase Mortgage Pre-Approval Amount
To increase your pre-approval amount, you have to lower your DTI ratio. If you are eligible to get a home loan, but your mortgage amount is not large enough, you can either increase your income or decrease your debt. Even though both options take time, there are ways to increase your pre-approval amount faster.
- Improve Credit Score: Your credit score plays an important role in any mortgage program and can determine your pre-approval amount and your mortgage rate. You should look at your credit score before getting a mortgage. There are different ways to improve your credit score, such as correcting errors, keeping your utilization score low, and paying bills within your grace period.
- Reduce Debt: Debt increases your DTI ratio, which is the main factor that determines your mortgage pre-approval amount. Therefore, you should try to reduce your monthly debt using either of the two strategies: the snowball method and the avalanche method. The snowball method focuses on paying off the smallest debt and then moving on to the larger debt. The avalanche method is more focused on the interest rate, you pay off the debt with the highest interest rate and then move on to the debt with lower interest rates.
- Increase Income: Increase in income lowers your DTI ratio. Any increase in income may help you increase your mortgage pre-approval amount. Even though it may be difficult to increase your income overnight, you should consider other income sources your lender may not know about. If your lender knows about all your income sources, finding a co-signer with income may be another good way to increase your mortgage pre-approval amount.
- Find a Co-Signer With Income: If you have a family member, relative, or friend who has a higher income and credit score than you, they can be added as co-signers to your mortgage. Lenders consider the income of a co-signer when calculating the DTI ratio, which will increase your home loan pre-approval amount.
Frequently Asked Questions
What Is Mortgage Pre-Approval?
Mortgage pre-approval is the lender's process of providing a standing mortgage offer based on your current financial situation. It is a formal process where you submit required documents related to your income, debt, and assets to the lender. Mortgage pre-approval is an official mortgage offer, which allows you to accept the offer with the terms outlined before the offer expires.
Mortgage pre-approval can be used as proof that you can get a mortgage and cover the cost of a home purchase. It may be a great tool to differentiate yourself in the seller’s market and to negotiate lower prices in the buyer’s market.
What Is Mortgage Pre-Qualification?
Mortgage pre-qualification is a step that takes place prior to mortgage pre-approval. The lender provides an estimate; however, no documents need to be submitted and it is not a formal approval that the financing will be available. Our calculator can also provide an estimate giving you an idea of what to expect when you do meet the lender.
How Long Does It Take To Get Pre-Qualified and Pre-Approved?
Mortgage pre-qualification is an informal process that requires basic details. Lenders can provide a non-binding estimate within a day or two. It can happen in person, online, or even over the phone.
Pre-approval on the other hand requires a deep dive into your finances and is binding, hence, it can take up to several business days, depending on the lender.
How Long Does a Mortgage Pre Approval Last?
Mortgage pre-approvals are usually valid for 60 to 90 days, depending on the lender and economic conditions. The mortgage pre-approval letter must clearly state the expiry date of the offer. It is important to note that mortgage pre-approval may also be revoked if an adverse change in the borrower’s financial situation occurs. For example, if a borrower chooses to buy a new car, get a loan or quit their job, their DTI ratio may change drastically, which will invalidate the mortgage pre-approval.
How Pre-Approval Works for FHA, VA, and USDA Loans?
A pre-approval process for FHA, VA, and USDA loans is quite straightforward and generally is similar to the pre-approval process for a conventional loan. Most differences arise due to specific requirements the three loans have.
FHA loans have certain restrictions on the amount a single person can borrow. The loan limit for an FHA loan varies between $473,030 and $1,089,300. This means that the pre-approval loan limit will also include the number that is consistent with the limits set for a chosen county. Even if a qualifying person earns enough to qualify for a $1,500,000 mortgage, they will never get pre-approved for that amount simply because the limit for FHA loans is lower. In addition to that, VA loans do not have a minimum down payment and credit score requirements. This means that a qualifying borrower does not have to show proof of sufficient funds or credit score to get pre-approved.
VA loans are open to eligible veterans and servicemembers, which means that a person who is not a veteran or a serviceman will not be able to get pre-approved for a VA loan. In addition to that, VA loans do not have a minimum down payment and credit score requirements. This means that a qualifying borrower does not have to show proof of sufficient funds or credit score to get pre-approved.
USDA loans are open to people looking to buy a house in a rural area of the US. Even if a person gets pre-approved, they may not be able to get the mortgage for a house located in an ineligible area. USDA loans do not have a down payment or a fixed credit score requirement. This means that a borrower does not have to have money saved up to be pre-approved. On the other hand, even though there is no credit score requirement, some banks may not pre-approve a person with a bad credit history, which makes it difficult to get pre-approved for a USDA loan to buy a house with bad credit history.
The pre-approval process is very similar for any type of mortgage loan. A lender must ensure that a borrower meets eligibility requirements for an inquired loan. If a borrower is eligible, then the lender may calculate the pre-approval amount using the same steps as a conventional loan pre-approval process uses. In some cases, if the pre-approval amount is larger than the mortgage limit, then the borrower may be pre-approved for the mortgage limit.