Most people seriously underestimate the true cost of buying a home. They start hunting for a house with big dreams, but are disappointed when they go to the bank and find out they can only qualify for a much smaller mortgage than they had hoped for.
That’s why we created this Mortgage Loan Prequalification Calculator. This will help you figure out how much money you really need to buy a new home.
Keep in mind, however, that this is only an estimate. The official number will be determined by the mortgage lender.
How to use the Mortgage Loan Prequalification Calculator
This mortgage prequalification calculator shows you how much housing finance you can qualify for. Here’s how to complete each of the fields to get your own prequalification score:
Personal and Mortgage Information
- Annual income – Enter your gross income, which is your total income before taxes and other payroll deductions such as your health insurance and pension plan contributions. Linenbased on your income gross income, not your net (after taxes) income.
- Mortgage period – This can be anywhere from 10 to 30 years, but entering 30 years will have the lowest payments and allow you to qualify for the highest loan amount.
- Interest rate – This is the rate you expect to pay on the loan you receive. Based on current rates, 7% is a safe estimate. But keep in mind that depending on your credit situation, you may not qualify for the lowest rate available.
Minimum eligibility criteria
- Your credit score range – If you don’t know your score, yYou can sign up for a free credit score service. Just be aware that your free credit score may be different from what your mortgage lender will give you. If your credit score is below 620, you are likely to have difficulty getting a mortgage.
- Have you worked full time in the last two years? — Mortgage lenders generally require a minimum of two years of full-time work experience. However, there are exceptions if you recently graduated from college or recently retired from the military.
- Do you save on down payment? — While mortgage lenders prefer borrowers to pay a minimum down payment of 20% of the purchase price, they are cutting the rate down to 3%. The only exception is the VA mortgage, which provides 100% financing and requires no down payment.
- Have you been foreclosed in the last seven years or filed for bankruptcy in the last four years? — Bankruptcy and mortgage foreclosure rules are a bit complicated. In the event of bankruptcy, you will be eligible after four years. However, you can qualify in as little as two years if the bankruptcy was caused by extenuating circumstances, such as a serious medical event or a long-term job loss. For foreclosure, the waiting period is seven years, but can be reduced to three years if there are extenuating circumstances.
Monthly regular payments
- Total recurring monthly debts − These include loan payments such as student loans, car loans, and credit cards, as well as child support or child support payments, if you are required to pay them. However, you do not need to include current expenses for example, utilities, insurance premiums, or contributions to retirement plans.
- Monthly property tax cost We chose the $195 national average; however, it is better if you can get the actual figure for your region. Property taxes can vary considerably from one state to another, or even from one municipality to another.
- Monthly cost of home insurance — This is one of the most difficult numbers to estimate as it varies by location, property value and even property type. The calculator includes $140 per month as this is the national average.
After filling in all the fields, click in Check button. You will be given both the recommended maximum mortgage amount and the monthly mortgage payment.
Keep in mind that the monthly mortgage payment is only the principal and interest you will pay on the loan. It will not include monthly property taxes or monthly home insurance premiums. You will need to add these costs to your mortgage payment to determine what your total home payment will be.
Mortgage prequalification vs pre-approval
There is an important difference between mortgages pre-qualification and mortgage prior approval.
Prequalification
When you apply for a prequalified mortgage loan, the lender tells you how much mortgage financing you are eligible for. based on the information you provided. That is, the lender can take your information online or over the phone without checking it against supporting documentation.
Therefore, a mortgage loan prequalification is an opinion based on the information you provide, subject to verification of everything.
Pre-approval
Mortgage pre-approval occurs when you submit an application – along with supporting documentation – that has been signed by the lender and approved. Under ideal circumstances, you are fully approved based on your income, credit, and assets. The only thing you need is an accepted house contract offer and an estimate.
Mortgage pre-approval is what a real estate agent or real estate seller will look to you to provide. Since this will indicate that you are a pre-approved borrower, it carries significant weight when you are making a house offer.
Review our Mortgage Pre-Approval Checklist to find out what information and documentation you need to provide.
Summary
This mortgage pre-qualification calculator gives you an estimate of how much you can borrow, which will help you narrow down your home search to properties that fit your budget.
Just remember that mortgage loan prequalification is based on the information you provide and is not a guarantee that you will actually get approved for a mortgage loan. Mortgage pre-approval, on the other hand, is a more thorough process that involves submitting supporting documents and having your application signed by the lender.