Mortgage Pre-Qualification Calculator

Taylor Getler
By Taylor Getler 
Edited by Amanda Derengowski Reviewed by Michael Soon Lee

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What is mortgage pre-qualification?

Mortgage pre-qualification is an informal evaluation of your creditworthiness and how much home you can afford based on self-reported information like your credit, debt, income and assets. Based on these inputs, pre-qualification estimates the amount a lender may be willing to lend you.

If you’ve gotten pre-qualified, the next step, called “preapproval,” involves providing documentation of everything you reported in your pre-qualification and a hard credit pull. Preapproval demonstrates a more serious step towards homeownership, whereas pre-qualification is an optional process that can be helpful for understanding your financial readiness to buy a home.

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How to use the pre-qualification calculator

Our pre-qualification calculator can provide an idea of what to expect out of the process before you talk to a lender. Filling out this calculator will not pre-qualify you for a mortgage. If you’re ready to get pre-qualified, you can reach out to one of our recommended lenders to start the process.

To use our calculator, provide the following information:

  1. Enter your annual income before taxes.

  2. Enter the term of the mortgage you’re considering.

  3. Enter the interest rate for your mortgage type or use today’s mortgage rate.

  4. Select your credit score range. (Not sure? Get your free credit score.)

  5. Tell us about your employment status.

  6. Tell us if you have a down payment.

  7. Tell us about past foreclosures or bankruptcy.

  8. Enter your monthly recurring debt payments.

After completing each required field, you’ll see the loan amount we recommend, as well as a higher loan amount. We show two pre-qualification amounts because:

  1. Different loans have different debt-to-income requirements. For example, conventional loans usually have stricter DTI requirements than FHA loans, insured by the Federal Housing Administration.

  2. It’s not always smart to borrow 100% of what a lender offers. The maximum loan amount is the most the lender is willing to loan you, not what makes sense for your budget. A higher loan amount will mean a higher monthly mortgage payment. Borrowing too much could make it difficult to ride unexpected financial bumps, such as a job loss or a big medical bill.

What’s behind the pre-qualification calculation?

The debt-to-income ratio, or DTI, is a common formula that lenders use for mortgage pre-qualification, and it comes in two varieties: front-end and back-end.

Front-end DTI is the dollar amount of your home-related expenses, including the future monthly mortgage payment, property taxes, insurance and homeowners association fees, divided by your gross monthly income.

Your back-end DTI ratio is the sum of your home-related expenses plus all your other monthly debt — including credit cards, student loans, personal loans and car loans — divided by your gross monthly income. Conventional mortgage lenders generally prefer a back-end DTI ratio of 36% or less, but government-backed loan programs may allow a higher percentage.

NerdWallet’s pre-qualification calculator looks at back-end DTI while also considering other aspects of your credit profile, such as employment, credit score and down payment.

What’s the difference between pre-qualification and preapproval?

Unlike pre-qualification, preapproval requires proof of your debt, income, assets, and credit score and history.

Sellers often prefer to see a preapproval letter with your offer over a pre-qualification letter. Being preapproved can give you a distinct advantage if you're competing for a home with buyers who aren't.

To get preapproved, you’ll supply documentation such as pay stubs, tax records and proof of assets. Once the lender verifies your financial information, which may take a few days, it should supply a preapproval letter you can show a real estate agent or seller to prove you’re ready and able to purchase a home.

Keep in mind, pre-qualification doesn’t guarantee preapproval. You can still be turned down if your financial documents don’t support the numbers you reported.

Does pre-qualification affect your credit score?

Getting pre-qualified does not affect your credit score. Lenders usually base pre-qualification on the information you provide and don't pull your credit report.

When a lender checks your credit report, it counts as a "hard inquiry." Too many hard inquiries can lower your credit score if they reveal you're trying to open many new credit lines in a short period. But multiple hard inquiries in a short time frame as a result of shopping for mortgage rates generally do not hurt your credit score.

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How to increase your pre-qualification amount

Pre-qualification can help you form a realistic budget and get ready to start looking at homes. You could pre-qualify for a larger loan and expand your options if you:

  • Grow your credit score: Three ways to do this quickly include correcting errors on your credit report, using less of your credit limit and paying bills on time and in full each month.

  • Consolidate or pay off debts: If you have high-interest debt spread out over several credit cards, consolidating it will reduce your monthly debt payments. Eliminating debt completely, through larger or more frequent payments, is even better. Reducing expenses and following a budget will help.

  • Consider an adjustable-rate mortgage: These loans often begin by offering a lower rate than a fixed-rate loan, but after an introductory period, that rate can increase or decrease based on market conditions. You can often afford more home if you choose an adjustable rate mortgage — just be sure you have a plan for when the introductory period ends.

  • Increase your income: A higher gross income will improve your DTI ratio (especially if your debt stays the same) and may qualify you for a larger loan amount. You may be able to achieve this by asking for a raise or starting a side hustle.

Getting the most from your pre-qualification limit

Beyond qualifying for a larger mortgage, there are other ways to make homeownership more affordable.

  • Be flexible about your location: It simply costs more to buy in some areas than in others. If you’re willing to compromise on some items on your neighborhood wish list, you may open up new options for affordable homes.

  • Look for highly motivated sellers: Sellers whose properties have been on the market for a long time may be more likely to lower their price. Your agent can help you identify these homes and strategize about your offer.

  • Renovate a home that’s less than perfect: While it’s not for everybody, the fixer-upper route can be a solid choice for borrowers struggling to afford a move-in-ready home in their desired area. There are even loan options available for borrowers to roll renovation costs into their mortgage, like Freddie Mac’s CHOICERenovation loan.

You can also improve affordability by exploring loans with low- or no-down-payment requirements. This means you can hold on to more of your savings, which can come in handy for the unexpected costs of homeownership.

How long does it take to get pre-qualified for a mortgage?

You can typically expect to get pre-qualified in a day or two, sometimes less. Depending on the lender, pre-qualification can happen in person, over the phone or online.

More from NerdWallet:

Frequently asked questions

NerdWallet subscribes to the 28/36 rule of thumb, which means that monthly home-related expenses (including your mortgage payment, mortgage insurance and property taxes) shouldn’t be more than 28% of your gross income, and all of your monthly debts (including those debts related to homeownership) shouldn’t account for more than 36% of your gross income.

Using the guideline that your home-related expenses shouldn’t be more than 28% of your gross income, you should try to keep your monthly mortgage payment (including property taxes and mortgage insurance) under $4,666 if you have a household income of $200,000 a year. If your monthly debts plus $4,666 are greater than 36% of your gross income, you’ll either need to reduce your monthly debts, put down a larger down payment or set your sights on a lower-priced home.

There are so many elements at play that can determine home affordability, and everyone’s financial circumstances are unique. NerdWallet’s mortgage payment calculator can help you determine what your monthly payments would be if you bought a $400,000 home, and it shows how this figure changes based on factors like your down payment and property taxes. Ideally, this monthly payment should be less than 28% of your gross income.

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