Half the home buying process is obtaining financing. That starts with finding out how much you can borrow, and what your new monthly payment will be. You can start with this mortgage preapproval calculator.

Since most people severely underestimate that true cost of buying a home, Money Under 30 has created a mortgage pre-approval calculator that can help you understand how much you can really take out to buy a home.

How the mortgage pre-approval calculator works 

This mortgage pre-approval calculator gives you the opportunity to know in advance how much home financing you can qualify for. But please understand it’s a calculator only, and the official number will be determined by a mortgage lender. 

In addition, the validity of the results you’ll get from this mortgage prequalification calculator will only be as good as the information you input. For that reason, be as accurate as you can be. If you inflate any information, like your annual income or your credit score range, you may get a higher loan amount, only to get a smaller pre-approval amount from an actual mortgage lender. 

The mortgage pre-approval calculator is self-explanatory, but here’s a general overview.

Personal and mortgage information

Annual income

Enter your gross income, which is your total income before income taxes and other payroll deductions, like health insurance and retirement plan contributions.

Lenders base your income on your gross income, not your net (after-tax) income.

Mortgage term

This can be anywhere from 10 years to 30 years, but entering 30 years will have the lowest payments, and enable you to qualify for the highest loan amount.

Interest rate

This is the rate you expect to pay on the loan you’ll receive. Based on current rates, 4% is a safe estimate. But be aware that based on your credit situation, you may not qualify for the lowest rate available.

Minimum qualification criteria

Your credit score range

You should use your most recent credit score. That should be the one you’ve obtained within the past 30 days. You may need to sign up for a free credit score service to obtain the most recent score.

Just keep in mind that your free credit score may be different from what a mortgage lender will pull. If your credit score is below 620, you’ll likely have difficulty getting a mortgage.

Have you been employed full-time for the past two years?

Mortgage lenders generally require a minimum full-time work history of at least two years. However, there are exceptions if you are a recent college graduate or recently discharged from the military.

Are you saving toward a down payment?

Though mortgage lenders prefer borrowers who make minimum down payments of 20% of the purchase price, they’ll go as low as 3%.

The one exception is a VA mortgage, which provides 100% financing and requires no down payment.

Have you been foreclosed on in the past seven years or filed for bankruptcy in the past four years?

The bankruptcy and foreclosure rules to qualify for a mortgage are a bit complicated. On bankruptcy, you’ll be eligible after four years. However, you can qualify in as little as two years if the reason for the bankruptcy was due to extenuating circumstances, like a major medical event or extended job loss.

On foreclosures, the waiting period is seven years, but it can be reduced to three years with extenuating circumstances. 

Monthly recurring payments

Your total recurring monthly debts

You’ll need to include primarily loan payments, such as student loans, car loans, and credit cards. But you’ll also need to include alimony or child support payments if you’re required to pay either.

However, you don’t need to include recurring expenses, like utilities, insurance premiums, or contributions to retirement plans. 

Monthly property tax cost

If you’re refinancing your current home, enter the actual annual tax bill on the property. If you’ve selected a property to purchase, get the annual real estate tax amount from the real estate agent or home seller.

If you’re just beginning the home selection process, put in a reasonable estimate. But get a ballpark estimate from a real estate agent first. Real estate taxes can vary considerably from one state to another, or even from one county or municipality to another. 

Monthly home insurance cost

This is one of the most difficult figures to estimate because it varies by location, property value, and even property type.

The calculator includes $80 per month, since it’s the national average. But until you have a firm policy quote on a property, this number will be no better than a loose estimate.

Once all fields have been entered… 

Hit the “Check” button. You’ll be provided both the recommended maximum mortgage loan amount and the monthly mortgage payment.

Please be aware that the monthly mortgage payment is just the principal and interest you’ll be paying on your loan. But it will include the monthly property taxes or monthly home insurance premiums. You’ll need to add these expenses to the mortgage payment to determine what your total house payment will be. 

Once again, these are just preliminary numbers to help you start the home buying process. It will give you an idea of how much mortgage you’ll qualify for, and the projected monthly payment. The numbers supplied by your mortgage lender may be different. 

How to get pre-approved

To get pre-approved, you’ll need to apply directly through a mortgage lender. Most likely, you’ll need to be in contact with a live mortgage representative. But, the application process is increasingly taking place online. 

If you’re looking for an online mortgage experience that can do a lot of the work for you, check out Reali Loans. They guarantee a quick process, and they’ll tell you what you’re missing for documents on day one, so you only have to gather documents once (maybe twice).

In general, once you submit your application and required documentation, your application will go through the loan approval process. You’ll make the process easier by having all your information and documentation gathered before making an application. 

Once you submit, you’ll be halfway through the home buying process – before you even put an offer in on a home.

What you need to get pre-approved for a mortgage

Let’s start by pointing out the important difference between a mortgage prequalification and a mortgage pre-approval. The difference is significant.

Prequalification

When you apply for a mortgage prequalification, the lender is letting you know how much mortgage financing you qualify for based on the information you supply. That is, the lender may take your information online or over the phone, without verifying it with supporting documentation.

A mortgage prequalification, therefore, represents an opinion based on the information you supply, subject to verification of everything. 

Because a mortgage prequalification doesn’t include supporting documentation, it does little more than inform you about how much you’ll qualify for. But it generally won’t be of much use in working with a real estate agent or making offers on properties.

Pre-approval

A mortgage pre-approval happens when you submit an application – complete with supporting documentation – that’s been underwritten by the lender and approved. Under ideal circumstances, you’re fully approved based on your income, credit, and assets. The only thing you’ll need is an accepted contract offer on a home and an appraisal. 

A mortgage pre-approval is what a real estate agent or property seller will be looking for you to supply. Because it will indicate you are a pre-approved borrower, it carries substantial weight when you make an offer on a home.

Documentation required to get pre-approved for a mortgage

To get a full pre-approval, you’ll need to be prepared to provide the following documentation:

  • Pay stubs – You’ll need to provide your most recent pay stub, which must show your year-to-date earnings. You’ll need a pay stub for each job you have, and for each person applying for the pre-approval.
  • W2s – Many mortgage lenders will require your W-2(s) for at least the most recent calendar year. However, some lenders may require them for the past two years.
  • Completed, signed income tax returns – You’ll need to provide these if you’re self-employed, or have substantial real estate, investment, or partnership income. They should include all pages of IRS Form 1040, including schedules.
  • Asset statements – For bank accounts or taxable investment accounts, you’ll need to provide statements covering the most recent two months, or the most recent quarter. For retirement accounts, you’ll need to provide something similar. 
  • Gift information – If some or all your down payment will come from a gift, you’ll need to provide the amount of the gift, when it will be available, who the donor will be, and what their source of funds for the gift will be. The lender will likely request that the donor complete a formal mortgage gift letter, that will request specific details.
  • Photo ID – This can usually be satisfied by providing your driver’s license. In some cases, the lender may request a copy of your Social Security card. These documents will be requested to verify your identity for federal compliance purposes.

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About the author

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Since 2009, Kevin Mercadante has been sharing his journey from a washed-up mortgage loan officer emerging from the Financial Meltdown as a contract/self-employed “slash worker” – accountant/blogger/freelance web content writer – on Out of Your Rut.com. He offers career strategies, from dealing with under-employment to transitioning into self-employment, and provides “Alt-retirement strategies” for the vast majority who won’t retire to the beach as millionaires. He also frequently discusses the big-picture trends that are putting the squeeze on the bottom 90%, offering work-arounds and expense cutting tips to help readers carve out more money to save in their budgets – a.k.a., breaking the “savings barrier” and transitioning from debtor to saver. He’s a regular contributor/staff writer for as many as a dozen financial blogs and websites, including Money Under 30, Investor Junkie and The Dough Roller.