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If your mortgage loan is backed by the Federal Housing Administration (FHA), you’ll have the added expense of up-front mortgage insurance and monthly mortgage insurance premiums. The calculator doesn’t display your debt-to-income (DTI) ratio, but lenders care a lot about this number. They don’t want you to be overextended and unable to make your mortgage payments. Debt-to-income ratio (DTI) is a lender term used to determine home affordability. The ratio is determined by dividing the sum of your monthly debts by your verifiable monthly income. An FHA loan is government-backed, insured by the Federal Housing Administration.
If you're thinking about buying, start with this home affordability calculator
If your loan requires other types of insurance like private mortgage insurance (PMI) or homeowner's association dues (HOA), these premiums may also be included in your total mortgage payment. Make sure your mortgage payment (principal, interest, property taxes and homeowners insurance) is no more than 29% of your gross monthly income. Also make sure your total monthly debt (mortgage plus car loans, student debts, etc.) is no more than 41% of your gross monthly income. The first number in the 29/41 rule, 29, represents your housing expense ratio. You might be making payments on a car loan, credit card, personal loan or student loan.
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FHA loans have looser requirements around credit scores and allow for low down payments. An FHA loan will come with mandatory mortgage insurance for the life of the loan. Get pre-qualified by a lender to see an even more accurate estimate of your monthly mortgage payment. APR (%) is a number designed to help you evaluate the total cost of a mortgage. The APR is calculated according to federal requirements and is required by law to be stated in all home mortgage estimates.
Type of home loans to consider
You will have an easier time making your payments, or (better yet!) you will be able to pay extra on the principal and save yourself money by paying off your mortgage early. At a minimum, it’s a good idea to be able to make three months’ worth of housing payments out of your reserve, but something like six months would be even better. That way, if you experience a loss of income and need to find a new job, or if you decide to sell your house, you have plenty of time to do so without missing any payments. You’ll stop paying PMI when your mortgage reaches about 78% of the home’s value. Mortgage rates drop or rise daily, reacting to changing economic conditions, central bank policy decisions, and investor sentiment. The table shows current mortgage interest rates and APRs by loan term.
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So don’t feel like you’re stuck with the rate of the first lender you meet. After you close, your mortgage loan servicer will deposit part of your total monthly payment into another escrow account. When using this home mortgage calculator, you can use today’s average mortgage rate for “interest rate.” Lower interest rates mean you’re paying less each month and over the life of the loan. Your interest rate determines how much money you will repay the bank for your mortgage. Though paid monthly, interest rates are expressed in annual terms.
This will ultimately determine how much house you’re able to afford. Once you can put down 20%, you won’t have to pay for mortgage insurance. Alternatively, a refinance calculator can help you decide whether or not refinancing your current mortgage loan will result in a lower monthly payment. Your PITI, combined with any existing monthly debts, should not exceed 43% of your monthly gross income — this is called your debt-to-income ratio (DTI). Conforming loans are bought by housing agencies such as Freddie Mac and Fannie Mae and follow their terms and conditions.
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Loan limits change annually and are specific to the local market. Jumbo loans allow you to purchase more expensive properties but often require 20% down, which can cost more than $100,000 at closing. If you obtain home financing, you’ll repay more than the amount you borrowed because the amount you repay is determined by several factors, including the interest and loan amount. List out your expenses and then add them together to get your total monthly spending. For a mortgage loan, the borrower often is also referred to as the mortgagor (and the bank or lender the mortgagee). But if you can swing a balance transfer it might be able to help you fast-track your debt payment and get you to the debt-to-income ratio you need to qualify for a home purchase.
Common terms
“Conforming thresholds” depend on the county where the property is located. You’ll want to use a home affordability calculator to determine how much home you can afford and only buy a home that fits within that budget. For most home buyers, this means choosing a home and mortgage loan that will keep your total monthly mortgage payment at 29% or less of your gross monthly income. The table above shows a comparison of 30-year vs. 15-year fixed-rate loans for a $250,000 home with a 20% down payment. The monthly payments for the $200,000 mortgage includes homeowners insurance and property taxes for Kansas City, Missouri.
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Here’s what you need to know about qualifying for a pre-approval and the benefits of getting one. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. At Bankrate we strive to help you make smarter financial decisions.
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Now that you’ve looked at your DTI and any debt you may have, think about your budget. If you don’t have a budget, keep track of your income and expenses for a couple of months. You can create a personal budget spreadsheet or use any number of budgeting apps or online budgeting tools when allocating your annual income. The Loan Estimate (LE) shows your total mortgage costs — including the down payment, closing costs, monthly payments, and interest paid over the life of the loan. Homeowner's insurance is based on the home price, and is expressed as an annual premium. The calculator divides that total by 12 months to adjust your monthly mortgage payment.
For example, your earnest money — which tells the buyer you’re making a genuine offer — will likely go into escrow. It will be held there until closing, at which time it’s applied to your down payment. Escrow isn’t a term on the mortgage calculator, but it’ll appear in more than one phase of your home buying process. Homeowners insurance should not be confused with private mortgage insurance, which is something else entirely.
Your credit score and DTI will also be important factors in determining what interest rate and loan terms you get from the lender. For example, with a $100,000 annual salary, you can afford a $300,000 house based on the maximum multiplier. However, you might be able to afford a more expensive home if you can secure a low interest rate or have enough money saved up for a large down payment. A good answer would be a home that you won’t regret buying and one that won’t have you wanting to upgrade in a few years. As much as mortgage brokers and real estate agents would love the extra commissions, getting a mortgage twice and moving twice will cost you a lot of time and money. Loan requirements for cash reserves usually range from zero to six months.
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