Mortgage Required Income Calculator - Capital Bank (2024)

The best way to think about how much home you can afford is to consider what your maximum monthly mortgage can be. As a general rule of thumb, lenders limit a mortgage payment plus your other debts to a certain percentage of your monthly income, which can be approximately 41%.

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Glossary of terms

  • Desired mortgage amount
  • Monthly housing expenses
  • Monthly liabilities
  • Monthly housing payment
  • Maximum principle and interest
  • Start interest rates
  • The term in years
  • Real estate taxes
  • Hazard insurance
  • Association dues or fees
  • Monthly PMI

Desired mortgage amount

The amount a borrower agrees to repay, as set forth in the loan contract.

Monthly housing expenses

Monthly outlay that includes monthly mortgage payment plus additional costs like property taxes and homeowners insurance, as well as other potentially applicable costs like mortgage insurance, flood insurance, homeowners association or co-op fees, or special tax assessments.

Monthly liabilities

Amounts of money that you owe to another person or entity. Liabilities can be short-term like credit card payments or longer-term like car loans or mortgages.

Monthly housing payment

A mortgage payment that includes PITI (principal, interest, taxes, insurance).

Maximum principle and interest

Calculated by subtracting your monthly taxes and insurance from your monthly PITI payment to calculate the maximum principle and interest (PI) payment to determine the mortgage amount that you could qualify for.

Start interest rates

The introductory interest rate, also known as the teaser rate or start rate, on an adjustable or floating-rate loan. It is usually lower than most other interest rates and often stays consistent within a specific time frame only.

The term in years

Mortgage terms aren’t limited to 30 and 15 years. Plenty of buyers prefer other options like 10-year, 20-year, 25-year, 40-year, and even five-year terms, based on their monthly income and budgetary goals.

Real estate taxes

Charged on immovable property, including land and structures that are permanently attached to the ground, such as a house or building. When you buy a home, you must pay real estate taxes, also known as property taxes, directly to your local tax assessor or indirectly as part of your monthly mortgage payment.

Hazard insurance

Insurance coverage for the structure of a home.

Association dues or fees

Required by some condominiums and neighborhoods as part of a homeowners’ association (HOA). Dues are typically paid directly to the homeowners’ association (HOA) and are not included in the payment you make to your mortgage servicer.

Monthly PMI

Stands for private mortgage insurance, which is a type of mortgage insurance you could be required to pay for if you have a conventional loan. PMI is typically required when you obtain a conventional mortgage and make a down payment of less than 20 percent of a home’s purchase price.

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Commonly Asked Questions

For most buyers, obtaining a mortgage and buying a home is the largest financial undertaking they will complete in their lifetime. Homes appreciate in value and are typically considered a sound investment for most applicants.

But committing to repay a large amount of money can be confusing. Let’s look at the most commonly asked questions that pop up during the process.

Lenders consider two main points when reviewing loan applications: the likelihood of repaying the loan (typically determined by a credit score) and the ability to do so (typically determined by proof of income).

Nerdwallet.com explains that mortgage income verification, even if they have impeccable credit, borrowers still must prove their income is enough to cover monthly mortgage paymen

Online resource Investopiea.com explains that the lower an applicant’s debt-to-income ratio, the greater the chances that the borrower will be approved for a credit application.

As a customary rule, 43 percent is the highest debt-to-income — read DTI — ratio a borrower can have and still be qualified for a mortgage.

However, lenders prefer a debt-to-income ratio lower than 36 percent, with no more than 28 percent of that debt as a mortgage or rent payment.

In reality, though, the maximum DTI ratio varies from lender to lender.

Mortgage refinancing options are reserved for qualified borrowers, just like new mortgages. As an existing homeowner, you’ll need to prove your steady income, have good credit, and be able to prove at least 20 percent equity in your home.

Just like borrowers must prove creditworthiness to initially qualify for a mortgage loan approval, borrowers have to do the same for mortgage refinancing.

Both ratios are considered for credit application approvals.

Front-end DTI s a calculation beyond DTI that pinpoints how much of a person’s gross income is going toward housing costs. If a homeowner has a mortgage, the front-end DTI is typically calculated as housing expenses, including mortgage payments, mortgage insurance, and homeowners insurance, divided by gross income.

On the other hand, back-end DTI estimates the percentage of gross income going toward other types of debt, such as credit cards or car loans.

Experian explains that prequalification tends to refer to less rigorous assessments, while a preapproval will require you to reveal more personal and financial information with a creditor.

As a result, an offer based on a prequalification may be less reliable than an offer based on a preapproval.

There are four key factors to qualifying for a home mortgage: a down payment of at least 3 percent, a credit score of at least 620, PMI rates or similar fees, and DTI

For an FHA loan, the residence must be the primary place you will live. In addition, you need to have a credit score of at least 500, a down payment of at least 3.5 percent, and a DTI ratio of less than 50 percent. No specific income minimums are required. Watch our video for more information. (This is an estimated example.)

To afford a house that costs $600,000 with a 20 percent down payment (equal to $120,000), you will need to earn just under $90,000 per year before tax. The monthly mortgage payment would be approximately $2,089 in this scenario. (This is an estimated example.)

To afford a $400,000 house, borrowers need $55,600 in cash to put 10 percent down. With a 30-year mortgage, your monthly income should be at least $8200 and your monthly payments on existing debt should not exceed $981. (This is an estimated example.)

To be approved for a $200,000 mortgage with a minimum down payment of 3.5 percent, you will need an approximate income of $62,000 annually. (This is an estimated example.)

The maximum mortgage you may qualify for depends on several factors, including: credit score, combined gross annual income, monthly expenses, the proposed down payment, and other associated costs.

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Conclusion

In conclusion, the primary factors for mortgage approval are credit score, income, existing debt, and down payment. As a savvy consumer, you can run scenarios with various inputs to find the right mortgage lending solution for you.

Once you procure a mortgage, be sure to pay your payments on time and include extra principal payments as available. These actions will ensure you are able to refinance should mortgage rates become more desirable.

Home-ownership is a journey and a dream for most Americans. Use the research we’ve compiled to make the most of your adventure toward owning a home.

Disclosure

The information provided by these calculators is for illustrative purposes only. Results do not reflect all loan programs and are subject to specific loan limits. Qualification, rates and payments will vary based on timing and individual circ*mstances. This is not a commitment to pre-approve or lend. Be sure to consult a financial professional prior to relying on the results. The calculated results are intended for illustrative purposes only and accuracy is not guaranteed.

Mortgage Required Income Calculator - Capital Bank (2024)

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