This mortgage qualifier calculator checks whether you qualify with your salary to take a loan by considering the 2 debt to income ratios allowable (rule 28 - 36%).There is in depth information on this topic below the form.
How does this mortgage qualifier calculator work?
This is a useful financial tool that can help you when trying to figure out whether you may qualify or not to borrow money through a mortgage loan by considering your annual gross income and current debt obligations you owe. The variables that should be given to simulate your affordability in the eye of a lender are:
Mortgage amount (Ma) which is how much you want to take to purchase your own home.
Annual interest rate (r) refers to the yearly interest you would pay to the lender for the principal taken.
Loan term (Lt) that can be either in years or months.
Annual property tax value.
Annual homeowners insurance value which is usually requested by the lender in order to protect his investment.
Monthly association fees or dues where applicable.
Monthly lease / auto loan payment if the case.
Monthly personal loan payment if applicable.
Monthly other debts where you can specify for instance any student loan debts, other obligations you owe month by month.
The algorithm behind this mortgage qualifier calculator applies the standard loan monthly payment formula and then computes all the debts in order to estimate the total out of pocket on a monthly basis. Once the total out of pocket is calculated, then it estimates the annual gross income needed to qualify for a mortgage according to the rule of 28 and 36.
The importance of the annual gross income
As expected the annual gross income is a primary indicator lenders first ask about because of the following reasons:
It is a direct measure of your affordability as according to the rule of 28 or 36 you are allowed to take a loan that requires a monthly payment equal or less than 28%, respectively 36% from your monthly salary. Thus the more you earn the more you can borrow.
From lender’s point of view the annual gross income against your current debts dictate the risk associated with lending you money, thus the lower the DTI is (which in fact can be impacted by your yearly salary) the better is as you can get lower interest rates.
Last but not least the more you earn, while having not that many current obligations can help you take a loan for a shorter period of time as you can afford to pay sufficient enough to repay in a shorter period of time your obligations.
Example of a calculation
Let’s assume the following conditions:
Mortgage amount = $100,000
Annual interest rate = 3.25%
Loan term = 30 years
Annual property tax value = $2,500
Yearly homeowners insurance = $600
Monthly association fees or dues = $100
Monthly lease / auto loan payment = $500
Monthly personal loan payment = $200
Monthly other debts = $100
■ Your gross annual income considering the rule of 28% debt to income ratio, should be at least equal to $29,723.13
■ Your gross annual income considering the rule of 36% debt to income ratio, should be at least equal to $53,117.99
■ Monthly payment on mortgage (principal + interest): $435.21
■ Monthly payment related to the home (tax & insurance): $258.33
■ Total monthly payment related to the home (mortgage payment + tax & insurance): $693.54
■ Other monthly debts to pay: $900.00
■ Monthly total out of pocket: $1,593.54
■ Total paid for the mortgage loan: $156,674.27
■ Total interest paid for the mortgage: $56,674.2704 Mar, 2015