Pre-qualification is the first stage of the loan home purchase process. The following screen determines an estimate on the amount of loan you can qualify for.

When qualifying for a loan, usually no more than approximately 40% of your gross income can be used to pay for your total monthly payments (Including the new loan). This is the qualifying ratio and will vary between lenders. Your monthly income is used to base your maximum loan amount and maximum purchase price.

To determine the maximum loan amount you can obtain, make a projection as to how much of a down payment you can afford. A larger down payment will decrease the loan amount. Increase the down payment by cashing in stocks or other investments, adding a gift (money) from parents, etc. If your down payment does not meet the required amount for the loan your income will obtain, you will need to re-calculate using either a larger available figure, or lower your debts or interest rate.

Your available funds should be a representation of your total savings. This program will use this in several ways. First and most prominent is the Down Payment. Roughly 80% of your available funds can be used for Down Payment, Closing Costs, and Other Costs to obtain the loan. The remaining amount will be used as reserves. After closing your loan, you generally need about 6 months of your total loan payment including taxes and insurance in reserve.

Calculations for the pre-qualification worksheet are based on the following:

Gross Monthly Income ­
Lenders look at your debt to income ratio. The amount you spend for housing (mortgage payment, property taxes, insurance) should not exceed 30 - 38% of your monthly gross income.

Debts ­
All other debts such as car payments, student loans and credit cards are then added to your housing expenses. This sum should not exceed 38 - 40% of your monthly gross income. If it does, don't panic, there are loan programs that address this issue.

Term in Years ­
Specify the number of years that you'd like to have the loan amortized over. For example, most loans are for 15 or 30 years.

Specify the interest rate that you'd like to pay-
This should be based on the most current interest rate information.

Cash Available -
Your housing affordability depends on the amount of money you have for the down payment, closing costs and a cash reserve. The more you can come up with, the less you will have to borrow.