Mortgage Preapproval Calculator
If you’re looking for a home, you’re more than likely searching for mortgage loans from reputable lenders. You might be wondering “How much house can I afford with my budget?” Determining your budget for a home can be difficult without the right tools. Mortgage payments generally consist of four components: principal, interest, taxes, and insurance (collectively known as PITI). Mortgage pre-approval calculators can help you and lenders understand your current financial stability and what you can afford.
How Much Can I Borrow for a Mortgage Based on My Income and Credit Score?
When it comes to mortgage affordability, most lenders have requirements in place to make sure you can afford your loan repayments over time. While things like income and credit score can fluctuate over time, the initial mortgage loan amount depends heavily on these factors. A lender doesn’t want to loan you money that you can’t pay back, especially when it comes to an asset like a home. This is for both your benefit as well as ultimately making owning your home much more financially feasible.
One factor to consider is your credit score, because it shows how you’ve handled debt in the past. Generally, the higher your credit score is, the lower your interest rate on a mortgage will be. Lenders determine your eligibility for a mortgage by collecting your credit score from each of the three credit bureaus—Equifax®, TransUnion® and Experian™. Your credit score, which runs from 300 to 850, is used to determine how creditworthy you are. For most borrowers, the recommended credit score is 620 or higher. If your credit score is lower, you might not be approved for the loan or could have higher monthly payments and interest rates—also known as annual percentage rate (APR).
Another way to determine your mortgage borrowing amount is considering your income. A general guideline for securing a mortgage is that they’re typically affordable within two and two and a half times your yearly income. That means if you make $75,000 a year, your max mortgage loan could be $187,500. However, your income is mostly calculated through debt-to-income ratios.
What Is a Good Debt-to-Income Ratio?
No matter the price of the home you choose, one of the most important deciding factors of what your mortgage looks like is the debt-to-income ratio. Just as with income, the lender doesn’t want to give you loan terms you can’t afford.
Front End Ratio
The Front End Ratio, or mortgage-to-income (MTI) ratio, is the percentage of yearly gross revenue allocated to mortgage payments each month. The mortgage payment is made up of four components: interest, principal, insurance, and taxes. In general, these expenses should not exceed 28% of the borrower's total income.
Back End Ratio
The Back End Ratio, or debt-to-income ratio (DTI), determines the percentage of income needed to pay off debts. No more than 36% of gross income should be used as the debt-to-income ratio. The total income is multiplied by 0.36 and divided by 12 to determine monthly debt.
If you make $3,000 per month and pay $1500 in debt payments each month, your debt-to-income ratio is 50%, meaning that half of your monthly income goes toward paying down your debt.
In mortgage lending, income ratios are known together as the 28/36 rule. 28% for front-end and 36% for back-end ratios. This is an easy way to remember the percentages you need to meet for a better mortgage rate.
How Much Will a Bank Loan Me for a House Calculator
At Indiana Members Credit Union, we offer a mortgage calculator that helps you determine the amount of money you qualify for. We don't initially examine things like your payment history, debt-to-income ratio, or comparable information. You might not get the estimated pre-qualification amount when you submit a full application because the data utilized is incomplete. These are the factors you’ll need to enter to receive your pre-approval amount:
- Type of property
- Loan purpose
- Purchase price
- Down payment
- State and zip code
- Credit score
We also have a separate calculator that will give you an estimate of your monthly payment plan, which asks for the following information:
- Mortgage amount: Original or expected balance for your mortgage.
- Term in years: The number of years over which you will repay this loan. The most common mortgage terms are 15 years and 30 years.
- Interest rate: Annual fixed interest rate for the mortgage.
- Monthly repayment: Monthly principal and interest payment (PI).
Our calculator produces a report that gives you a mortgage summary, like total loan amount and monthly payment. It also breaks down your payment schedule over the term you’ve decided.
Calculate Your Mortgage Possibilities with IMCU
At Indiana Members Credit Union, we offer several different programs so you can get the best mortgage for your home. Many of our applicants were referred by members and realtors as we continue to provide a customer-focused approach to lending. The mortgages we offer include:
- Fixed Rate Mortgage
- Adjustable Rate Mortgages
- Manufactured Home ADVANTAGE® Loans
Loan Officers at Indiana Members Credit Union are available to help you with your home finance requirements.On our site, you can choose your Loan Officer and begin an application today. You can also reach out to a Loan Officer by email or phone.