- Pre-qualification
- An early, informal estimate of how much a buyer may be able to borrow, based on self-reported income, debts and savings. It is not a loan commitment or approval. This calculator applies standard housing and debt-to-income limits to your figures; a lender’s review of credit, income documents and assets can produce a different number.
- Pre-approval
- A more formal step than pre-qualification: the lender checks your credit and verifies income and assets, then issues a conditional commitment for a loan amount. Sellers often expect one with an offer. It still depends on the property appraisal and final underwriting, and it expires after a set period.
- Housing ratio (front-end)
- The maximum share of gross monthly income the full housing payment may take: principal, interest, taxes, insurance and HOA dues. The 28% default is a traditional guideline, not a rule every lender applies. At $95,000 a year, 28% allows a housing payment of about $2,217 a month.
- Debt-to-income ratio (DTI)
- The back-end limit: the housing payment plus all other monthly debts, divided by gross monthly income. The 43% default reflects a common guideline tied to the CFPB’s qualified-mortgage rules, not a legal cap; many lenders allow higher ratios with strong compensating factors. Existing debts reduce the housing payment this limit allows.
- Limiting ratio
- Whichever of the two limits, housing ratio or total DTI, produces the lower maximum housing payment. The calculator uses that lower figure. With few other debts the housing ratio usually limits; with significant car, student or card payments, total DTI usually does, and paying down those debts raises the pre-qualified amount.
- PITI
- Principal, interest, taxes and insurance: the full monthly housing payment lenders measure against income. In this calculator the maximum PITI is set by the limiting ratio; your monthly taxes, insurance and HOA are subtracted from it, and what remains is the principal and interest the loan can carry.
- Maximum loan
- The largest loan whose principal-and-interest payment fits within the maximum PITI after taxes, insurance and HOA, at the rate and term you enter. Adding the down payment gives the pre-qualified home price. A higher rate or shorter term lowers it; lower taxes or HOA dues raise it.
- Down payment
- Cash put toward the purchase at closing; the pre-qualified home price is the maximum loan plus this amount. It does not change the loan you qualify for here, but it raises the price you can target. Set aside separate funds for closing costs and reserves, which the down payment figure should not include.
- Gross monthly income
- Annual income before taxes and deductions, divided by 12; both ratios are applied to this figure. Lenders generally count only stable, documented income, such as salary, and may average bonus, commission or self-employment income over time, so qualifying income can be lower than what you actually earn.
