Determine your maximum affordable home price and estimated loan amount with our streamlined Pre-Approval Mortgage Calculator, factoring in your income, debts, and desired interest rate.
Pre-Approval Mortgage Calculator
Max Affordable Home Price:
$0.00
Max Estimated Loan Amount: $0.00
Pre-Approval Mortgage Calculator Formula
The calculation uses the standard monthly payment formula based on Debt-to-Income (DTI) affordability to determine the maximum principal (P).
Max Principal (P) = M * [ (1 + r)^n – 1 ] / [ r * (1 + r)^n ]
Where: r = Monthly Interest Rate, n = Total number of payments.
Formula Source: CFPB – Mortgage Preparation Guide | Investopedia – Mortgage Pre-Approval
Variables
The following variables are used in this calculator:
- Annual Gross Income ($): Your total household income before taxes, used to determine affordability.
- Total Monthly Debt Payments ($): Recurring monthly obligations like car loans, student loans, or credit card minimums (excludes rent/current mortgage).
- Estimated Annual Interest Rate (%): The expected interest rate you might qualify for.
- Loan Term (Years): The duration of the mortgage (typically 15 or 30 years).
- Down Payment Percentage (%): The percentage of the home price you plan to pay upfront.
Related Calculators
What is Pre-Approval Mortgage Calculator?
A pre-approval mortgage calculator is an online tool designed to estimate the maximum loan amount a lender might be willing to offer you, based on core financial data. Unlike a simple affordability check, a pre-approval calculator often incorporates industry standards like the Debt-to-Income (DTI) ratio to project your potential borrowing power before you officially apply to a bank.
The calculation is a critical first step in the home buying process. It helps establish a realistic budget, allowing prospective buyers to narrow their home search to an appropriate price range. By providing an estimated maximum loan amount, it prevents the common pitfall of falling in love with a property that is financially out of reach. Remember, this is an estimate; actual pre-approval will require a formal application and credit check.
How to Calculate Pre-Approval Mortgage Calculator (Example)
Assume an Annual Income of $120,000, Monthly Debts of $1,000, 6.0% Rate, and a 30-year term. (Using a max DTI of 43%):
- Calculate Monthly Gross Income (MGI): $120,000 / 12 = $10,000.
- Calculate Max Total Monthly Payment (Max M): $10,000 \times 0.43 = $4,300.
- Calculate Max Principal & Interest (P&I) Payment: $4,300 (Max M) – $1,000 (Monthly Debt) = $3,300.
- Calculate Monthly Rate (r) and Total Payments (n): $r = 0.06 / 12 = 0.005$. $n = 30 \times 12 = 360$.
- Solve for Max Principal (P): Using the loan formula, a $3,300 monthly payment over 360 periods at 0.5% per month yields a maximum principal (loan amount) of approximately $550,300.
- Determine Max Home Price: If you plan a 20% down payment, the Max Price is $550,300 / (1 – 0.20) = $687,875.
Frequently Asked Questions (FAQ)
What is the maximum Debt-to-Income (DTI) ratio a lender uses?
While this calculator uses a common benchmark of 43%, lenders may accept DTI ratios up to 50% for certain loan programs. However, a lower DTI (ideally under 36%) makes the pre-approval process smoother and often secures better rates.
Is pre-approval the same as pre-qualification?
No. Pre-qualification is a rough estimate based on self-reported information. **Pre-approval** is a conditional commitment from a lender, backed by a review of your credit report, income, and assets, giving you more credibility with sellers.
Do I need to include property taxes and insurance (PITI) in this estimate?
In a real-world pre-approval, the lender’s monthly P&I payment (Principal and Interest) is just one component. They also factor in Taxes, Insurance, and HOA fees (the ‘TI’ and ‘E’ of PITI). This calculator provides a simplified P&I estimate based on your maximum affordability.
What if my actual debt is lower than my input?
Since the calculation uses your monthly debt to reduce your maximum affordable payment, reducing your debt input will directly increase your maximum estimated loan amount and affordable home price.