Using a Mortgage Calculator
A mortgage calculator can help you estimate your monthly payments including principal and interest, property taxes, homeowner’s insurance, and private mortgage insurance (PMI). Use a mortgage calculator to help you determine your budget. Use the following steps to help you in devising a practical budget.
- Begin your budget by determining how much you (and your partner) earn each month from all revenue streams. Consider if there are other ways you can boost your income to increase your budget.
- Calculate all the housing costs. Determine annual property tax and home insurance costs and set aside some money for home maintenance costs. Property taxes and annual home insurance policies will differ between states, cities, and housing types. Do your research on median costs for the area you are looking to purchase in. Take into consideration that some areas may be at risk of earthquakes and flooding, which require additional policies at an increased cost.
- Estimate the mortgage interest rate and the terms of the loan.
- Calculate your average living expenses and set this aside. You may wish to cut down your living expenses to increase your budget. You can do this by cancelling some of your subscriptions, buying more generic brands at the grocery store, and monitoring how much you spend on going out.
- Set aside some money for unexpected personal costs.
Financial advisors suggest following the 28/36% rule. This means not spending more than 28% of your gross monthly income on housing expenses and no more than 36% on total debt. Debts are not restricted to housing but also car loans, student loans, and credit card expenses. The 28/36 rule will help you establish a base amount that you can afford to pay each month.
How a Down Payment Affects Your Costs
A 20% down payment on your home is usually the threshold where lenders won’t require you to purchase private mortgage insurance, an additional monthly cost. Higher down payments can lead to better mortgage rates because lenders are risking less money. If you don’t have a large down payment to make, it is possible to secure a mortgage rate with less and then refinance into a lower rate later. Learn more about mortgage loan types and the benefits of refinancing with New American Funding.
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