The text will also include a higher income (see "How does it work?" below for more details). If you exceed both of the incomes, you have an excellent chance of qulaifying. If you exceed just the smaller income, you should still be able to qualify.
This calculator does not consider other factors that lender's use to approve mortagages. Here are some of the other things that you should keep in mind when applying for a mortgage
- Many lenders will require that you have enough money in the bank to cover all your debt payments including the mortgage for a few months.
- Most loans include closing costs of some kind. These are also known as points because they are given as percentage points of the loaned amount. For example, a $100,000 loan with 1.5 points means you'll need $1500 cash when you complete the loan.
- Don't forget any commission you must pay to a real estate broker. Typically you cannot finance these costs as part of your mortgage.
This calculator determines the income most lenders will require by calculating the "28%" and "36%" income. For the 28% income, lenders will add up your monthly principle and interest (PNI) payment, your monthly home owners insurance payment, the monthly tax payment, and the monthly mortgage insurance payment (PMI) if your down payment is less than 20%. They'll multiply this total by 12 to get an annual amount. They'll then check to see if this total is more than 28% of your annual pre-tax income.
For the 36% income, lenders will take the above total monthly payment, and add in your current montly debt payment (car, credit card, etc). Once again they'll multiply this total by 12 to get an annual amount. They'll then check to see if this total is more than 36% of your annual pre-tax income.
The calculator first calculates the monthly principle and interest (PNI) payment for the loan. It then uses the Insurance rate and Tax rate field to calculate the monthly mortgage and tax payments. It also checks your down payment, and if it's less than 20%, calculates a monthly mortgage insurance payment (PMI). It adds these up, multiplies by 12, then calculates the 28% income. The caculator will then add in the Monthly debt, multiply by 12, and calculate the 36% income.
Finally, the calculator will take the smaller of the two incomes and display it in the income field. The calculator will also indicate the other income in the text field.
Don't forget about this second income because it can make a big difference. For example if the two incomes are $55,000 and $57,000 and you make $55,000, you'll have no problem qualifying. However, if the two incomes are $55,000 and $75,000 and you still make $55,000, you may have to work harder to find a lender who will approve the loan you need.