Online Help for Real Estate Calculator Suite  :  Table of Contents

Mortgage Qualification Calculator

The Mortgage Qualifier is a calculator designed to help you determine the maximum monthly payment and loan amounts for which you may qualify under the common underwriting guidelines.

The Mortgage Qualifier uses the information you provide about your income, your debts, and the amount of cash you have available for a down payment to show you some general values for the monthly payment, loan amount and purchase price for which you may qualify.

Begin by entering your monthly income and the monthly income of your co-borrower.  Next enter the housing ratio (also called front ratio or top ratio).  The reasonable industry standard is 28.  The housing ratio is determined by dividing the total monthly mortgage payment (PITI, PMI and HOA fees) by your total monthly income.

(Note:  Call your lender and ask for the housing and debt ratios that will be used to determine what you may borrow.)

Here's an example of how the housing ratio determines how much home you can afford.  If your total monthly income of $5,000 and the housing ratio is 28, your maximum monthly housing expenditure will be ($5,000 * .28) or $1,400 per month.

Remember, that's only how much your monthly income "qualifies" you to pay for your monthly housing expenses under fairly typical underwriting standards.

What you qualify for and what you can afford may be very different.  For example, if you make $5,000 per month and are paying $3,800 in minimum payments on credit cards and other loans, you can't afford a $1,400 housing payment!

Because what you earn is only part of the picture, Real Estate Calculator Suite also considers your debts.

Continue in the Mortgage Qualifier by entering your monthly minimum due on credit cards, you monthly auto loan payment(s), and the monthly amount due on student loans or other notes.  Do the same for your co-borrower.

Enter the debt ratio (aka back ratio or bottom ratio).  The standard debt ratio is usually 36.  The debt ratio is the sum of your monthly debt payments and your total monthly mortgage payment divided by your total monthly income.

An example of the debt ratio's impact on the amount you may qualify for is to continue with the example above of a $5,000 monthly income.  Suppose you make minimum debt payments which total $850.  With a debt ratio of 36 and a monthly income of $5,000 you would qualify for a maximum monthly debt expenditure of ($5,000 * .36) or $1,800.  Your maximum monthly debt expenditure includes long term debt that won't be paid off within 10 months and your housing expense.

Because you total debt expenditure is $1,800 and you are making minimum debt payments of $850.00, you must subtract the $850 from the $1,800 giving you a monthly housing allowance of $950.00.

In this example your housing ratio qualified you for a $1,400 monthly housing payment and your debt ratio qualified you for a $950 monthly payment.  A conscientious, conservative lender who doesn't want you to get into a mortgage that puts you in financial stress would qualify you for the lesser amount which, in this case, is $950.

Continue using the Mortgage Qualifier by entering the amount you have available for a down payment.  In our example, let's use $20,000.

Another factor that will reduce that actual amount of money that can be spent on a mortgage loan's principal and interest payment is the percentage that will be required for taxes, insurance and PMI (private mortgage insurance).  A typical value here is 20%.

Continuing, in the Example Loans section, enter the interest rate(s) you've been given by your lender for different terms.  Typically, the shorter the term, the lower the interest rate you will be provided.

Using the example values above, you qualify for a monthly principal and interest payment of $760.  For a 30 year term at 7.5% with the $20,000 down payment, you would qualify to borrow $108,693.40 for a purchase price of $128,693.40.

Remember, the loans computed by the Mortgage Qualifier are examples based upon the values you enter for your income, debts and amount you have saved for a down payment combined with the debt and housing ratios provided by your lender.

Finally, most people find it better to buy a home they like and can afford easily than one they can't afford and wind up hating because of the financial stress they face by over extending themselves.

Some people ask, "Why doesn't this mortgage qualifier compute interest only or ARM (adjustable rate mortgages)?"  Because compared to IO and ARMs, fixed rate mortgages are financially more comfortable and less risky.

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