How to Estimate Mortgage Pre Approval

by Amber Keefer, Demand Media
    An online mortgage calculator can help you estimate mortgage payments.

    An online mortgage calculator can help you estimate mortgage payments.

    A mortgage loan is a huge investment; therefore, you need to find the loan that best fits your particular financial situation. Bankrate.com recommends seeking preapproval for a home mortgage loan after you are prequalified. While prequalification helps you to estimate how large a mortgage loan you can afford, a preapproval letter shows that you have been approved for a mortgage for a specific amount. However, preapproval is only valid for the length of time indicated.

    Step 1

    Use an online mortgage calculator to get an estimate of the mortgage amount for which you could be preapproved. Rely on a calculator that requires you to input your income and debts, as well as the loan term and interest rate you want to pay. Some calculators allow you to enter the amount of down payment you intend to make in addition to the estimated annual cost of property taxes and homeowner insurance.

    Step 2

    Calculate your total monthly income. Include income from wages, self-employment, rental income, disability benefits and any other sources of income.

    Step 3

    Subtract your monthly expenses from your monthly net income after taxes will give you a general idea of what you could afford to put out on a mortgage payment each month. Include car payments, auto insurance premiums, credit card payments, food bills, entertainment, student loan payments or other loan payments when figuring your monthly debt payments. You should also take into account ongoing health care costs and the amount you deposit into a savings or retirement account each month.

    Step 4

    Run the numbers to see where you stand. Your total liabilities should not exceed your total assets. The dollar amount you are left with after deducting your expenses from your take home pay is the amount you will have left over for housing expenses. Lenders won't let you take out a loan you can't afford. Generally, you can't pay out more than 36 percent of your gross monthly income for all your long-term debts combined when applying for a conventional home loan not backed by the government.

    Tip

    • When you go to apply for mortgage preapproval, the lender you choose will consider your income, assets and expenses in addition to your credit score and credit history. Standard online mortgage calculators don’t request information about your credit history or even all of your assets. During the formal preapproval process the lender will verify your employment, income and credit history.

    About the Author

    Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.

    Photo Credits

    • Comstock Images/Comstock/Getty Images