Monday, August 12, 2024

# How Much Will My Home Loan Be

## Why Its Smart To Follow The 28/36% Rule

How Much Should My House Payment Be? Mortgage Tips #3

Most financial advisers agree that people should spend no more than 28 percent of their gross monthly income on housing expenses and no more than 36 percent on total debt that includes housing as well as things like student loans, car expenses and credit card payments. The 28/36 percent rule is the tried-and-true home affordability rule that establishes a baseline for what you can afford to pay every month.

Example: To calculate how much 28 percent of your income is, simply multiply your monthly income by 28. If your monthly income is \$6,000, for example, your equation should look like this: 6,000 x 28 = 168,000. Now, divide that total by 100. 168,000 ÷ 100 = 1,680.

Depending on where you live and how much you earn, your annual income could be more than enough to cover a mortgage or it could fall short. Knowing what you can afford can help you take financially sound next steps. The last thing you want to do is jump into a 30-year home loan thats too expensive for your budget, even if you can find a lender willing to underwrite the mortgage.

## How A Mortgage Calculator Helps You

Determining what your monthly house payment will be is an important part of figuring out how much house you can afford. That monthly payment is likely to be the biggest part of your cost of living.

Using NerdWallets mortgage calculator lets you estimate your mortgage payment when you buy a home or refinance. You can change loan details in the calculator to run scenarios. The calculator can help you decide:

## How Much House Can I Afford Based On My Salary

To calculate how much house you can afford, use the 25% rulenever spend more than 25% of your monthly take-home pay on monthly mortgage payments.

That 25% limit includes principal, interest, property taxes, home insurance, private mortgage insurance and dont forget to consider homeowners association fees. Whoathose are a lot of variables!

But dont worry, our full-version mortgage calculator makes it super easy to calculate those numbers so you can preview what your monthly mortgage payment might be.

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## Use This Fha Mortgage Calculator To Get An Estimate

An FHA loan is a government-backed conforming loan insured by the Federal Housing Administration. FHA loans have lower credit and down payment requirements for qualified homebuyers. For instance, the minimum required down payment for an FHA loan is only 3.5% of the purchase price. The FHA mortgage calculator includes additional costs in the estimated monthly payment. Such as, a one-time, upfront mortgage insurance premium and annual premiums paid monthly.

This FHA loan calculator provides customized information based on the information you provide. But, it assumes a few things about you. For example, that youre buying a single-family home as your primary residence. This calculator also makes assumptions about closing costs, lenders fees and other costs, which can be significant.

Estimated monthly payment and APR example: A \$175,000 base loan amount with a 30-year term at an interest rate of 4.125% with a down-payment of 3.5% would result in an estimated principal and interest monthly payment of \$862.98 over the full term of the loan with an Annual Percentage Rate of 5.190%.1

## Dont Forget To Factor In Closing Costs

Alright, dont freak out here. But a down payment isnt the only cash youll need to save up to buy a home. There are also closing costs to consider.

On average, closing costs are about 34% of the purchase price of your home.1 Your lender and real estate agent buddies will let you know exactly how much your closing costs are so you can pay for them on closing day.

These costs cover important parts of the home-buying process, such as:

• Appraisal fees
• Attorneys
• Home insurance

Dont forget to factor your closing costs into your overall home-buying budget. For example, if youre purchasing a \$200,000 home, multiply that by 4% and youll get an estimated closing cost of \$8,000. Add that amount to your 20% down payment , and the total cash youll need to purchase your home is \$48,000.

If you dont have the additional \$8,000 for closing costs, youll either need to hold off on your home purchase until youve saved up the extra cash or youll have to shoot a little lower on your home price range.

Whatever you do, dont let the closing costs keep you from making the biggest down payment possible. The bigger the down payment, the less youll owe on your mortgage!

Recommended Reading: What Percentage Does A Loan Officer Make

## Borrowers With A Low Down Payment

Many of todays buyers, especially when purchasing their first home, find saving for a down payment challenging. As housing costs rise and people are saddled with student loan debt, many folks need a loan with low down payment requirements.

FHA loans require only 3.5 percent down . This is good news for folks who would otherwise be required to make a larger upfront payment.

## How Do Mortgages Work

To put it simply, a mortgage is a loan you take out from a bank, with your home as collateral. Assuming the traditional 20% down payment, youâre borrowing an amount of money equal to 80% of your homeâs price, and paying it back over a fixed term, usually 30 years, plus interest. If you canât pay back this loan, the bank can seize your home.

Your monthly payment is calculated by dividing the principal by the number of months in the term, and multiplying that by the interest rate.

Once you add other charges like taxes, property insurance, or private mortgage insurance, youâve got your monthly mortgage payment.

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## What Is Your Remaining Mortgage Balance

You’ve paid into your mortgage for a few years.

But do you know your remaining mortgage balance?

This mortgage balance calculator makes the process of figuring your remaining mortgage balance easy.

Simply enter your original mortgage amount, annual interest rate, original term, monthly payment amount, and one of three other known variables. Instantly, you’ll have your estimated mortgage balance!

It is important to note, however, that this calculator only works with fixed-rate mortgages.

Here’s what you need to know about mortgage balances . . .

## How Does My Loan Term Frequency And Repayment Type Impact My Repayments

How Much Should My Mortgage Be: How to Know how Much House You Can Afford

There are many factors that can have an impact on your repayments, the most obvious ones being the interest rate and the loan amount. Other factors, such as the loan term, repayment frequency and type can also have an impact on your repayments.

Loan term: A longer loan term means your monthly repayments will be smaller, but over the total loan term you will actually end up paying more in interest because the interest has more time to accumulate. If you chose a shorter loan term, your monthly or fortnightly repayments may be bigger, but youll pay less interest over the life of the loan. That also means your overall loan amount will be smaller than if you chose a longer loan term.

For example, lets say you take out a \$500,000 loan over a 30-year loan term, making monthly principal and interest repayments with an interest rate of 2.5% p.a. Heres how your repayments could change with different loan terms.

Loan term

\$172,925.10

Repayment frequency: Making more frequent repayments can also have an impact on your overall monthly repayments. For example, there are 12 months in a year but 26 fortnights. If you make fortnightly repayments instead of monthly ones, youre making one extra month of repayments per year which works out to be cheaper.

For example, lets say you take out a \$500,000 loan over a 30-year loan term, making monthly principal and interest repayments with an interest rate of 2.5% p.a. Heres how your repayments could change by making more frequent repayments.

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## Cherry Creek Mortgage Best For First

Cherry Creek Mortgage, which also does business as Blue Spot Home Loans and under a few other names, lends mortgages in 33 states.

Strengths: Cherry Creek Mortgage offers several low-down payment loan programs, including Conventional 97 and HomeReady loans and FHA, VA and USDA loans. The lenders website includes educational resources for first-time homebuyers, including a free downloadable guide to homeownership.

Weaknesses: Cherry Creek Mortgage isnt available in every state, and for FHA loans, it requires a minimum 620 credit score, which is higher than what some other lenders will accept.

## Estimate My Monthly Mortgage Payment

The loan amount, the interest rate, and the term of the mortgage can have a dramatic effect on the total amount you will eventually pay for the property. Further, mortgage payments typically will include monthly allocations of property taxes, hazard insurance, and private mortgage insurance . Use our mortgage calculator to see the impact of these variables along with an amortization schedule. Accurately calculating your mortgage can be a critical first step when determining your budget.

#### How Much Can I Afford to Pay for a House?

How much does a home cost? Before you get too comfortable with the asking price in the real estate ad, you should be aware of all the expenses you will be expected to pay.

First, there is the price of the home itself. The seller offers his or her house for sale at the asking price. This price may be negotiable depending upon the condition of the home and other factors. After the negotiations are done, the agreed-upon price becomes the cost of the home. To secure this cost, the buyer is expected to make a non-refundable payment to the seller. This is called earnest money. This amount will be deducted from the amounts paid when the sale is completed.

#### Finding Suitable Homes in Your Price Range

Mortgages contain two distinct parts:

• Principal. The amount you need to borrow to pay for your home and closing costs.
• Interest. What you pay the financial institution for the use of its money.

#### Am I Ready to Purchase a Home?

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## How Much Will My Mortgage Payment Be

The amount of a mortgage payment depends on many factors, including interest rate, term of the loan, and added charges like property taxes or insurance premiums. Letâs break down all the moving parts of the average mortgage payment.

Calculating your mortgage payments is rarely as simple as it seems. Many people simply divide their total loan amount by the months in the loanâs terms, and add interest, and are surprised to find out their mortgage payments are significantly more than they thought.

Thatâs because many mortgages also include added charges bundled into their payments, like taxes, property insurance, and private mortgage insurance , all of which can add hundreds of dollars to your payment.

The best way to get clarity regarding your mortgage payment is to consult with an experienced real estate professional. A great agent can answer any questions you might have, and clue you in on exactly what charges you will and wonât be responsible for.

## How Can I Qualify To Borrow More

If youre disappointed by the how much can I borrow results, remember that there are many factors at work. Small improvements in one or more can make a substantial difference:

• A bigger down payment always helps. The more money you put down, the better youll look in the eyes of the lender.

• Be a tactical buyer. If school districts wont play a role in your family for years, consider finding a home in a transitioning neighborhood maybe buying a starter home rather than a forever home. Youll likely get a better home value and wont need to borrow as much.

• Reduce debt even a little. Paying off or down a credit card or two can help in several ways. Your debt-to-income ratio will go down and you may even get a nice bump in your credit score.

• Also Check: Usaa Refinance Car

## How To Calculate A Down Payment

The down payment is the amount that the buyer can afford to pay out-of-pocket for the residence, using cash or liquid assets. Lenders typically demand a down payment of at least 20% of a homes purchase price, but many let buyers purchase a home with significantly smaller percentages. Obviously, the more you can put down, the less financing youll need, and the better you look to the bank.

For example, if a prospective homebuyer can afford to pay 10% on a \$100,000 home, the down payment is \$10,000, which means the homeowner must finance \$90,000.

Besides the amount of financing, lenders also want to know the number of years for which the mortgage loan is needed. A short-term mortgage has higher monthly payments but is likely less expensive over the duration of the loan.

Homebuyers need to come up with a 20% down payment to avoid paying private mortgage insurance.

## How Much House Does Dave Ramsey Say I Can Afford

For decades, Dave Ramsey has told radio listeners to follow the 25% rule when buying a houseremember, that means never buy a house with a monthly mortgage thats more than 25% of your monthly take-home pay.

At Ramsey, we also teach people they cant afford to buy a house unless they meet these qualifications:

• Are completely debt-free
• Have an emergency fund of 36 months of expenses
• Saved a down payment of 1020%
• Can qualify for a 15-year fixed-rate conventional mortgage

The reason we continue to teach these guidelines at Ramsey is because when people throw a mortgage on top of all their debt, unexpected expenses or a job loss can easily crush them financially. We dont want that to happen to you.

Read Also: Can I Use Fha If I Already Own A Home

## Want To Pay Your Loan Off Quicker

With strong property prices, its not uncommon for people to take out loans extending beyond 25 years. However, with the rise of technology and automation, who knows what the world would look like in a quarter century? Paying extra on your home means your balance is lower today AND your balance is lower tomorrow. The earlier you make mortgage overpayments, the more interest expense you will save.

Making early overpayments reduces your balance for the duration of the loan. Just take note of early repayment charges . Some lenders allow you to overpay up to a certain amount before prompting early repayment penalty fees. These fees can range between 1% to 5% of your loan amount. Be sure to make qualified overpayments to avoid this extra cost.

Suppose you want to pay off your loan in 15 years. Your original mortgage has with a 25-year term. To estimate the overpayment amount you need to make, adjust the above calculator to 15 years. For example, a £180,000 loan structured over 25 years will see you pay £56,581.78 in interest over the life of the mortgage. However, if you pay off the loan within 15 years, your monthly payment would jump from £788.61 to £1,182.51. See the example in the table below.

Loan Amount: £180,000

 £56,581.78 £32,851.43

## How To Calculate A Mortgage Payment

5 Mistakes I made when refinancing my home mortgage

Under “Home price,” enter the price or the current value . NerdWallet also has a refinancing calculator.

Under “Down payment,” enter the amount of your down payment or the amount of equity you have . A down payment is the cash you pay upfront for a home, and home equity is the value of the home, minus what you owe.

On desktop, under “Interest rate” , enter the rate. Under “Loan term,” click the plus and minus signs to adjust the length of the mortgage in years.

On mobile devices, tap “Refine Results” to find the field to enter the rate and use the plus and minus signs to select the “Loan term.”

You may enter your own figures for property taxes, homeowners insurance and homeowners association fees, if you dont wish to use NerdWallets estimates. Edit these figures by clicking on the amount currently displayed.

The mortgage calculator lets you click “Compare common loan types” to view a comparison of different loan terms. Click “Amortization” to see how the principal balance, principal paid and total interest paid change year by year. On mobile devices, scroll down to see “Amortization.”

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## How Do You Compare Loan Offers

In any loan scenario, you have to make underlying assumptions such as:

• If you are likely to remortgage the loan again.
• When you are likely to remortgage.
• Where you think interest rates are headed.
• If you think you will sell the home soon.
• If rates head higher and your rate resets well above the initial offer, will your wages be enough to cover payments?

Look Beyond the Monthly Payment

Its important to consider the overall mortgage costs, not just the monthly payment amount. Borrowers will find interest-only payments affordable. However, compared to a full repayment mortgage, you immediately build equity in your home. This bring you closer to home ownership, stability, and grants you further life flexibility. In contrast, interest-only payments do not build equity. It does not provide financial cushion which helps protect you against shifting market conditions.

If one loan amortises and the other does not, then you have to look at how much equity you build in a home. This is a key factor in determining value. Most people also do not want to pay mortgages for the entire lifetime, or until they hit a tough patch and risk foreclosure.

Example Loan Comparison from a Reader

The key to being able to accurately compare mortgage offers is to only adjust a single variable at a time. This way you can easily see the differences between offers, instead of trying to compare apples to oranges.

The example below is based on a question from one of our users named Dan.

Year