About US mortgage pre-qualification
US mortgage pre-qualification is the lender's first-pass check that your income, debts, credit and down payment will support a particular loan size. It is not a commitment to lend, but it sets the realistic ceiling on your house hunt. Two ratios do most of the work. Front-end DTI compares your projected monthly housing payment (PITI: principal, interest, taxes, insurance, plus HOA and mortgage insurance) to gross monthly income. Back-end DTI adds car payments, student loans, credit-card minimums, child support and any other revolving debt. Federal Qualified Mortgage rules cap back-end at 43% for the easiest path to approval, with some loan types and credit profiles able to push higher with compensating factors.
Loan type also matters. Conventional loans (Fannie Mae and Freddie Mac) cap at the 2026 baseline conforming limit of $815,000 for a single-unit primary residence. FHA loans accept down payments as low as 3.5%, charge mortgage insurance for the life of the loan in most cases, and follow HUD's looser DTI rules. VA loans for eligible service members and veterans use a residual-income method and require zero down. Jumbo loans (above $815,000 in most counties) follow private-investor guidelines: stricter credit, larger reserves, often higher pricing.
How the math works
- Pick the loan type. Each one sets a different DTI and LTV ceiling. Conventional is 36% front / 43% back at 95% LTV. FHA is 31% / 43% (50% with compensators) at 96.5% LTV. VA targets 41% back-end at 100% LTV. Jumbo is 38% / 43% at 80-90% LTV with reserves.
- Adjust the back-end DTI for credit score. Credit at 740+ keeps the full ceiling. 680-739 typically loses 2 to 3 points of back-end headroom. 620-679 loses 5 points and triggers loan-level price adjustments. Sub-620 is usually FHA-only.
- Convert allowable PITI to allowable P+I by stripping the tax, insurance, HOA and PMI components from the budget.
- Reverse the standard mortgage payment formula: max loan = P+I × (1 − (1 + r)^-n) / r, where r is the monthly rate and n the number of payments.
- Apply the LTV cap. Max price from DTI is downpayment + max loan. Max price from LTV is max loan ÷ max-LTV. Take the smaller of the two as your real ceiling.
- Add PMI automatically when conventional LTV exceeds 80%, and add FHA's MIP on every FHA loan. VA charges no monthly mortgage insurance but adds an upfront funding fee (typically 2.15% to 3.3%, baked into the loan). Jumbo can avoid mortgage insurance entirely at 80% LTV or below.
Same buyer, four loan types
Maximum house price for an identical income, debts and down payment, across loan types. Highlight is your current selection.
| Loan type | Min down | Max DTI back-end | Max LTV | MI rate (annual) | Max house price |
|---|
Sensitivity: improve your credit score
How max house price moves as you walk up the credit-score ladder, holding all other inputs constant:
| Credit band | Effective DTI cap | Rate adjustment | Max house price | Delta vs current |
|---|
Worked example: $120,000 income, 740 credit, $50,000 down at 6.5%
This is the default scenario shown above. The numbers help build intuition for the math.
- Gross monthly income: $10,000.
- Other monthly debts: $500 (car, credit cards).
- Conventional back-end DTI cap at 740 credit: 43%. Allowable total monthly debt = $4,300.
- Allowable PITI: $4,300 − $500 = $3,800/month.
- Monthly tax + insurance: $6,000/12 + $1,800/12 = $650.
- Allowable P+I: $3,800 − $650 = $3,150.
- Max mortgage at 6.5% over 30 years: present value of $3,150/month is roughly $498,000.
- Max house price from DTI: $498,000 + $50,000 down = $548,000.
- Max house price from LTV (Conventional 95%): $498,000 / 0.95 = $524,000. The LTV cap is the binding constraint at this down payment, so the realistic ceiling is approximately $524,000.
- LTV at $524,000 price: 95% means PMI applies. At 0.6% annual, PMI is $249/month, which the calculator subtracts from the P+I budget to get a refined max.
Eligibility quick-check by loan type
| Loan type | Min credit | Min down | Max DTI back | 2026 max loan (baseline) | Mortgage insurance |
|---|---|---|---|---|---|
| Conventional | 620 (740 for best pricing) | 3% to 5% | 43% (50% with reserves) | $815,000 | PMI 0.3-1.5%, cancels at 80% LTV |
| FHA | 580 (500 with 10% down) | 3.5% | 43% (50% with compensators) | $524,225 (low-cost), $1,222,500 (high-cost) | MIP upfront 1.75% + 0.55-0.85% annual, life of loan if down under 10% |
| VA | 620 (varies by lender) | 0% | 41% target, residual matters more | No cap with full entitlement | None. 2.15-3.3% funding fee added to loan |
| Jumbo | 700 (740+ for best pricing) | 10% to 20% | 38% / 43%, reserves matter | Above $815,000 baseline | None at 80% LTV. Some allow piggyback HELOC |
The credit-score impact on max purchase price
Two things move when your credit changes: the rate you can get (loan-level price adjustments, LLPAs) and the allowable DTI ceiling. The combined effect is non-linear. Moving from 660 to 760 typically:
- Drops your mortgage rate by 50 to 100 bps on Conventional, smaller on FHA/VA (which are credit-blended).
- Raises your effective DTI cap by 5 percentage points on Conventional.
- Lifts max house price by roughly 15% to 25% for the same income and down payment.
- Cuts PMI cost by half if LTV is above 80%.
Most credit-repair gains come from three actions: pay every revolving balance below 30% utilization, do not open new credit in the 6 months before applying, and dispute any errors. A 50-point gain is realistic in 60 to 90 days for most files.
Common mistakes that shrink your pre-qualification
- Carrying a high credit-card balance. Utilization above 30% drops your score 20 to 60 points overnight. Pay before statement date, not just before due date.
- Opening or closing accounts in the 6 months before applying. Hard inquiries and average-age changes both shave points.
- Co-signing a relative's loan. That payment counts in your DTI even if you do not make it.
- Forgetting student loan IBR/SAVE plan payments. Conventional now uses actual IDR payment if documented, but FHA uses 0.5% of balance regardless. That can flip your DTI.
- Cash deposits in the 60 days before closing. Any unsourced deposit must be sourced and seasoned. Stop depositing cash 2 months before applying.
- Switching jobs mid-application. Salary jobs are usually fine. Commission, bonus or self-employment requires a 2-year history.
- Forgetting property taxes vary 5x state-to-state. NJ at 2.4% vs HI at 0.3% can swing your max price by 15%.
State property tax and what it does to your budget
Property tax is the most variable single line in your PITI. Three rough bands:
| State group | Effective rate | $500K house tax/year | Monthly impact on PITI |
|---|---|---|---|
| Low (HI, AL, CO, LA) | 0.3% - 0.6% | $1,500 - $3,000 | $125 - $250 |
| Mid (FL, AZ, NC, GA, OH) | 0.8% - 1.2% | $4,000 - $6,000 | $333 - $500 |
| High (TX, IL, NJ, NY, CT) | 1.8% - 2.5% | $9,000 - $12,500 | $750 - $1,042 |
Note: TX has no income tax but high property tax. The trade-off shows up clearly when you compare states using the same income.
Pre-qualification vs pre-approval vs commitment
- Pre-qualification: Soft-pull conversation, no doc collection. Useful for ballpark numbers and what this calculator returns. Sellers do not weight it heavily.
- Pre-approval: Hard pull, income docs (W-2, paystubs, two years of tax returns if self-employed), asset statements. Lender issues a conditional letter with a specific dollar amount. Most listings require this to schedule a showing in hot markets.
- Commitment letter: After appraisal, title, and final underwriting. The loan is approved subject to specified contingencies. Required before closing.
The formulas explained
This calculator chains five formulas:
1. Monthly income = (income + co-income) / 12
2. Allowable PITI = monthly income × DTI cap − other debts
3. Allowable P+I = PITI − (annual tax + insurance)/12 − HOA − PMI estimate
4. Max loan = P+I × (1 − (1 + r/12)^-n) / (r/12) // standard amortization PV
5. Max price = min(max loan / LTV cap, max loan + down)
DTI caps and LTV caps come from agency guidelines (Fannie/Freddie selling guides, HUD Handbook 4000.1, VA M26-7, FHFA loan-limit announcements). LLPA (loan-level price adjustments) and MI rates are blended from current agency grids. Lender overlays may make your actual approval slightly more or less generous than this estimate.
To verify, plug in (120000, 0, 500, 770, 50000, 6000, 1800, 0, 6.5, 30, conv, mid): the result should land near $520K to $530K max house price, depending on PMI rounding.
Frequently asked questions
What is the difference between PMI and MIP?
PMI (Private Mortgage Insurance) applies to Conventional loans when your loan-to-value ratio exceeds 80% (i.e., down payment under 20%). It typically costs 0.3% to 1.5% of the loan annually and cancels automatically at 78% LTV per the Homeowners Protection Act. MIP (Mortgage Insurance Premium) applies to FHA loans regardless of down payment, includes an upfront 1.75% fee plus annual 0.55% to 0.85% spread monthly, and on loans originated after June 2013 with under 10% down, MIP lasts the entire life of the loan. To remove MIP you must refinance out of FHA into a Conventional loan once you hold 20% equity.
What is the 43% DTI tipping point?
43% is the maximum back-end DTI for a Qualified Mortgage under the CFPB's Dodd-Frank Title XIV rule. Below 43% the loan qualifies for safe-harbor legal protection and resells easily into the secondary market. Above 43% the loan is a non-QM product that typically prices 25 to 50 bps higher and demands extra documentation. FHA can stretch to 50% back-end with strong compensating factors (residual income, large reserves, low LTV). VA uses residual income rather than DTI percent, so high-DTI VA loans are routine if residual is comfortable. Conventional Fannie/Freddie automated underwriting can approve up to 45% to 50% if credit is 740+ and reserves are 6 months or more.
Can a gift fund my down payment?
Yes. Conventional loans allow 100% gift on a primary residence and 100% gift on a second home with 5% buyer skin (depending on lender overlays). FHA accepts gifts from family, employers, charities or government down-payment-assistance programs. VA allows gifts, although most VA loans go in at 0% down anyway. Lenders require a signed gift letter stating funds are not a loan, plus documentation of the donor's account and the actual transfer of funds. Best practice: have the donor wire the money directly to escrow, or season the gift in your account for 60 days to avoid having to document the source at all.
What is the FHA case number requirement?
Before an FHA appraisal is ordered, your lender must request an FHA case number from HUD. This number ties the appraisal to the property for 6 months. If your deal falls through, the next FHA buyer inherits the appraisal (and any low-value finding) for the remainder of the 6-month window. Always check FHA case number status before signing an FHA contract because a prior low appraisal can torpedo your purchase price. The case number also captures the property's compliance with FHA minimum property standards (no peeling lead paint pre-1978, working HVAC, no exposed wiring, intact roof). FHA flips also fall under the 90-day anti-flipping rule.
How do I get a VA Certificate of Eligibility?
Request a VA Certificate of Eligibility (COE) three ways: through the VA's eBenefits portal at va.gov, by mailing VA Form 26-1880, or via your VA-approved lender's portal (most lenders pull it in under a minute). Active duty needs 90 continuous days. National Guard or Reserves need 6 years (or 90 days of qualifying active wartime service). Veterans need 24 continuous months or the full period for which they were called. The COE displays your entitlement amount and any prior VA loan usage. Surviving spouses of service members who died in the line of duty also qualify and use VA Form 26-1817. The COE is free; lenders should never charge for retrieving it.
What are jumbo loan reserve requirements?
Jumbo lenders typically require 6 to 12 months of PITI in liquid reserves AFTER closing, compared with 2 to 6 months for Conventional. Some private-bank jumbo programs demand 18 to 24 months for loans above $2 million, and a few demand reserves up to 36 months on loans over $3 million. Retirement accounts (401(k), IRA) usually count at 60% to 70% of vested balance to reflect early-withdrawal penalties and market risk. Reserves are verified at application AND re-verified at clear-to-close, so do not move money around mid-process. Brokerage accounts and HSA balances generally count at 100% if liquid; restricted stock and pension cash count only after vesting.
What is the 2026 conforming loan limit?
The 2026 baseline conforming loan limit is $815,000 for a one-unit single-family property (up from $806,500 in 2025), set by FHFA every November based on FHFA's seasonally adjusted House Price Index. The high-cost-area ceiling is 150% of baseline, currently $1,222,500, and applies in counties like San Francisco, Marin, NYC, parts of Hawaii and DC suburbs. Multi-unit properties get higher limits: 2-unit $1,043,500 baseline, 3-unit $1,261,650, 4-unit $1,568,150. Above your local limit the loan is jumbo and follows non-agency guidelines with typically tighter credit, larger reserves, and 10 to 25 bps higher rates.
Conforming vs jumbo: which is better?
Conforming loans (under $815,000 baseline in most counties) follow Fannie Mae and Freddie Mac standardized underwriting: broader rate competition, lower reserves, easier qualification at 740+ credit, and they sell readily into the secondary market keeping rates competitive. Jumbo loans price 10 to 25 bps higher on average, demand 700+ credit (most lenders want 740+), 10% to 20% down, and 6 to 12 months of reserves. If your loan amount is just above $815,000, increasing the down payment to push it under the conforming limit usually saves money over the life of the loan. The exception: portfolio jumbo programs at private banks sometimes price BELOW conforming for high-net-worth borrowers with banking relationships.