Mortgage calculators are ubiquitous but that doesn't make them flawless.  If you don't understand the math behind how they work, they can be detrimental to your home search.

Here's how:

Internet-based mortgage calculators take just two factors into consideration when determining "how much house can you afford".

1. Income
2. Debt

A calculator also may ask for assets and downpayment information to boot, but the two items above are the main ones.

Then, the calculator multiplies your income by a factor of .33 to .38 to calculate debt ratios and, voila -- there is your answer. You can afford x dollars worth of home.

The problem is, the formula ignores the other major components of a mortgage approval, including:

• Recent bankruptcies
• Collection items
• FICO score
• Outstanding judgments or liens
• Intended use of property (i.e. investment property)
• Type of property (i.e. non-warrantable condominium, 6-unit)
• Other risk factors

Some users will say, "I am buying a plain vanilla SFR home with a plain vanilla mortgage. I am putting 20% and I have terrific credit -- the calculators are great."

To that I say, "wrong again."

My favorite component of mortgage approvals is I call compensating factors.  The name explains exactly what it is -- if a mortgage applicant is less-than-outstanding with respect to income, equity, or credit, his loan may still be approved based on strength somewhere else in the profile.

This is powerful stuff and the mortgage calculators miss it can't account for it.

A lot of people use the Internet and mortgage calculators for research.  In the end, though, it's probably best to double-check with a live loan officer just to make sure.  Calculators can only get you so far.