How Much Mortgage Can I Qualify For?

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How to use our mortgage qualification calculator

Do you have a ballpark idea of the amount of money you’d like to borrow?

By plugging in the price range of homes you’re looking at, what percentage of their value you can afford to put down, and the interest rate and term in years, you’ll see how much your monthly payment would be.

The tool also offers personalized mortgage rates, which allow you to generate a table of all your expected payments, broken down into interest and principal.

Focus on affordability, not how much you can borrow

First, you need to make an important distinction between what you can borrow and what you can afford.

If you’ve already been preapproved for a loan, you might have been surprised by the amount you were offered.

Mortgage lenders tend to approve borrowers for amounts at the very top of their price range. This is because the larger your loan, the more interest you’ll end up paying to your lender over the life of the loan.

Basically, it’s in your lender’s interest to lend you more. Instead, you should focus on the limits of your current budget instead of planning how to spend every penny of that loan.

If the monthly payment offered by the mortgage calculator seems too high to manage, consider running it again with a lower loan amount, or increasing the down payment percentage until you end up with a number you feel comfortable with.

Take your existing debt into account

When considering what you can afford, don’t forget about your other debts. In fact, the amount of debt you carry can be just as important when qualifying for a mortgage as having good credit.

Your lender will look at all your existing debt, including auto loans, personal loans and credit card balances. It will run the numbers through a debt-to-income ratio, which compares the total of your monthly debt payments to your gross monthly income.

The front end of your debt-to-income ratio will compare your housing expenses to your gross income, while the back end will measure all your other debts against your gross income.

This tells your lender how much more debt you can afford to take on.

Ideally, your lender will want to see a ratio of less than 43%. Generally, lenders have found that the higher your ratio, the more likely you are to have difficulty keeping up with payments. If your ratio is higher than 43%, you’ll be seen as a risky borrower.

Shop lenders

While you generally need a decent credit score and a solid amount of cash for a down payment, you should also know that standards for loan qualification will differ among lenders. Similarly, the loan terms offered by lenders can vary widely.

That’s why it’s important to shop around and compare offers. This will help you find a loan with the best terms for you.

Since you already know what you can afford through the mortgage calculator, you can focus your efforts on finding the best interest rate, which could save you a chunk of change over the life of your loan.

Factor in all homeownership expenses

Buying a home leads to a cascade of other expenses. Taxes, insurance, utilities and general upkeep will all need to be factored into your budget.

And don’t forget moving-in expenses such as furniture, paint and decor, as well as home or yard maintenance tools such as a lawn mower or vacuum cleaner.

When you’re thinking about how much home you can afford, remember to consider these expenses in addition to your expected mortgage payment.

And just to be safe, it’s good to have an emergency fund tucked away should you ever need it.

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Next steps

When you’re buying a home, you need to find a loan that will buy a home you’ll love yet not cause you to risk falling behind on your payments.

The key here is pairing the ideal loan amount with a mortgage rate and ending up with a monthly payment that you can fit into your budget.

By using our calculator and focusing on what you can realistically afford, you’ll soon be signing the papers on a home that checks all the boxes.

Key mortgage terms

When you’re applying for a home loan, the terminology can be difficult to decipher.

We’ve got you covered, with definitions and context for the terms you encounter.

Annual income

This is the total amount of money, before taxes, that you bring in each year. That includes any bonuses, commissions or tips. If you’re a couple filing jointly for a mortgage application, you’ll use your combined incomes before taxes.

Purchase price

How much you pay to purchase a home. This sum does not include any additional expenses or closing costs.

Total monthly payment

A number of monthly fees are included in your mortgage payment. Also known as your total monthly payment, this includes the principal, interest, taxes and insurance. PITI is a handy acronym to remember what’s included here.

Term in years

Mortgage loans have a set number of years (or a term) over which you’re expected to pay them back. Terms are commonly either 15 or 30 years.

Interest rate

Your interest rate determines what percentage of interest you’ll pay on your mortgage loan over a set period of time.

Property tax rate

Homeowners also need to pay annual property taxes. Your property tax rate will determine what percentage you owe, based on the value of your property.

Home insurance

Homeowners insurance is typically required by your mortgage lender. Your insurer will ascertain how much you owe based on the value of your home and a few other considerations, including its age, risk factors and renovations or updates.

Cash on hand

The amount of accessible cash you have for your down payment and closing costs.

Loan origination rate

The process of taking out a loan has a fee associated with it, called an origination fee. Typically, this will range from 0.5% to 1% of your loan amount. Your rate is the percentage assigned to your loan.

Mortgage points

This is a fee structure you can use to reduce the interest rate on your mortgage. Each point will cost about 1% of your total loan and will knock your interest rate down by 0.25%. You can buy multiple, or even fractional, points.

Closing costs

In addition to your down payment, you need to pay a few other upfront fees and taxes. Among them are the loan origination fee, any mortgage points, home inspection or appraisal fees, title searches and title insurance. As you pay them at closing, these are your closing costs.