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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:
Enter your annual income before taxes.
Enter the term of the mortgage you’re considering.
Enter the interest rate for your mortgage type or use today’s mortgage rate.
Select your credit score range. (Not sure? Get your free credit score.)
Tell us about your employment status.
Tell us if you have a down payment.
Tell us about past foreclosures or bankruptcy.
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:
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.
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.
» MORE: Learn more about the difference between pre-qualification and preapproval
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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