While thinking whether you are ready to buy a house or if you’ll qualify for a mortgage, you can’t help but think about the cost. Before taking that big leap, it’s always better to use mortgage calculators to figure out the additional expense you’d take on if you buy a new home. When you buy a house you want to be sure that the timing is right and that it is the best decision among other options.
While there’s no shortcut to solving all your apprehensions, you can, at least, be an informed buyer. Knowing what you’re entering into helps you feel more confident about any home-buying decision.
Awareness And Preparation Is Key
There are several benefits to buying your own home. When done right, you’ll save money and improve your living situation.
For starters, you can kiss renting goodbye. You can finally drill holes where you want to and put wallpaper in any part of the house you own. But before you get carried away, you have to take a step back and look at your current financial situation. When buying a house, you want to make a sound decision and mortgage calculators can help you with that.
Mortgage calculators put the numbers in your face. This way, you will have a more realistic projection of the price range of the house you can afford.
When purchasing a new home, most people would consider their current savings or how much rent they are currently paying for. This serves as an effective gauge on the monthly mortgage payments you can afford. However, the decision will ultimately lie with how much lenders are willing to lend you.
So, consider getting a pre-qualification online or by calling a certain lender. Bring out your income documents for reference and think about these things first:
- Your pre-tax income
- Pre-tax income of your co-applicant
- Your current monthly debts (credit cards, car loan, student loans, etc.)
- Kind of home you would like to purchase
- Location of the home you would like to purchase
- Your preferred amortization period
- Kind of mortgage you wish to get
Tip: List the relevant figures for your income and debt. You can use these numbers to come up with a realistic budget for buying a house.
1. What Is A Mortgage Calculator?
Mortgage calculators, as the name implies, helps you calculate the monthly interest and principal payments you need to make when you get a loan. You need to input certain information like the loan term, amount you need to borrow, and interest rates
2. Details To input In A Mortgage Calculator
A mortgage calculator provides a clearer picture of your finances and makes you feel more confident about the loan amount to apply for. It can help you compute the price of your loan in terms of monthly payments and as a whole.
Mortgage calculators usually require the same data inputs. You can play around with the figures to see the impact on your monthly payments.
Here are the detailed items you’ll see in a mortgage calculator:
- Price of home: The market price or purchase price of the property
- Downpayment: How much cash you can pay outright
- Size of the mortgage: Loan amount which is the purchase price minus the downpayment
- Interest rate: Usually determined by the lender based on your credit score and the current market rates
- Amortization period: Also known as the loan term. This determines how many years you plan to pay off your loan
- Start date: The period you plan to make the first payment on the loan
- Property tax: Applicable taxes on the property
- Private mortgage insurance: Usually applied if downpayment is less than 20% of the purchase price
- Home insurance: Financial protection for the home and personal property
- Loan type: Kind of loan program you want to apply for
Now that you’re familiar with the details and numbers to put in a mortgage calculator, you only need to complete the empty fields and click “calculate.”
If you want to learn more about the inputs in the mortgage calculator, check out this guide.
3. Mortgage Calculator
It’s time to put your new knowledge to test with our accurate and easy-to-use Mortgage Calculator
This is a detailed mortgage calculator. It a comprehensive breakdown of monthly payments with accompanying graphs and extra costs that you can add, like maintenance and HOA fees.
4. What Are The Advantages Of Using A Mortgage Calculator?
The online mortgage calculator may serve as your starting point in searching for a new home. With this tool, you can have a clearer view of the financial obligations when you start making mortgage payments.
There are a lot of prospective homebuyers who are not prepared to deal with a mortgage because they took out the loan without making the necessary plans.
If you have a mortgage broker, you can also ask for advice as to the best mortgage product for you. Mortgage brokers usually ask for information like your net income and expenses to help you better.
5. Meant To Be Used As A Guide
Yes, mortgage calculators are useful. Most lending websites have a calculator you can use but remember that these are just tools to help you estimated your mortgage payments. When you actually apply for a loan, your final mortgage payment would most likely be different. Remember that lenders consider your current employment, credit history, and property appraisals before they make a loan offer.
Here’s another word of advice — keep it real. Try to make your inputs as close to your actual budget as possible. When trying to check if your financial budget can take on the added expense, study your financial records. This way, you’ll know exactly where your money goes and if it’s possible to cut some spending to accommodate potential mortgage payments.
Don’t forget to consider the financial benefits of having your own property. You may be eligible for first time home buyer grants which can cover your down payment and closing costs. If you itemize, you can also take the mortgage interest deduction.
Common Apprehensions That Make Homebuyers Take A Step Back
After using a mortgage calculator, you realized that you can afford a mortgage. But you may still have reservations that are holding you back from buying a home.
Don’t worry, you’re not alone. In fact, even home buyers have regrets. Here are some of the most common apprehensions people have about buying a home.
I Need A Higher Credit Score
The average FICO score varies depending on the type of loan you’ll get. For conventional loans, you will need a FICO score of around 751. The good news is, the score is usually lower for VA loans and even lower for FHA loans. Of course, higher scores make you eligible for better rates.
I Don’t Want To Be Rejected In My Application For A Loan
Before you start home shopping, it’s always better to ask a mortgage company or a bank to evaluate your finances. It’s even better if you secure a preapproval for a mortgage. The process is usually free. Getting a preapproval also gives you that extra confidence when bidding for a house.
My Earnings Are Not Enough
When lenders look at your loan application, they consider whether you can afford to allocate 28% of your income on housing costs. Your total debt should also be 36% or less.
If you can’t manage to keep these ratios, check whether the price range of your dream home is too high. When the problem lies with your earnings and not your property options, maybe it’s time to rethink buying a home.
I Can’t Make The Downpayment
There are some home buyers who put down 20% of the purchase price as a downpayment. However, most homebuyers don’t put down 20%. Depending on the kind of loan you apply for, you can actually make a smaller downpayment. Depending on the lender, you may have to get private mortgage insurance if you decide on making a lower down payment.
I’m Buried In Debt
Sometimes, buying a home is more cost-effective even if you have other debts. Don’t assume that just because you already have a lot of debt then no one will be willing to lend you more money. If you spend less than 36% of your total income on debts, then you can still make the cut.
If you have other loans, always look at the bigger and more cost-effective picture.
I Can Barely Afford My Rent, How Will I Even Pay My Mortgage
Whether it’s better to buy a home or rent depends on where you live. In some cities, owning a home is more affordable than renting. Before you judge which option is better, check the average price for renting and buying.
Be On The Lookout For The Best Deals
Mortgage calculators are tools that help you determine if you are in a good position to buy a house and if you can afford the monthly mortgage. We all want to have that financial flexibility. And depending on our own personal considerations, we want to be able to make sound decisions, especially when it comes to big investments.
Mortgage calculators may guide you in determining whether you’re ready for a home or not and what the best financing options are. Play around with the figures. Decrease the downpayment, increase the term, go for a bigger downpayment or shorter the term. Doing this helps you plan ahead especially if you have a clear idea of how your financials will change in the future.
And here’s one final tip — take note of mortgage lenders offering the lowest interest rate and lender fees. This information could be handy once you decide that it’s time to start the home buying process.