One of the very first steps in your homeownership journey is deciding how much home you can afford. Use our mortgage calculator with the guidelines below to figure out how much you’ll pay a month with different loans and terms.
How Mortgage Payments Are Calculated
Our handy calculator will do the work for you. But, it’s beneficial to know what factors go into the monthly number you’ll pay for your mortgage. The determining factors are: how much you owe (the principal), your monthly interest rate, and the number of months you have to pay the loan back. These are commonly called the terms of the loan. You’ll see it written as something like a 30-year conventional loan with a 4% rate. With a conventional loan, your rate won’t alter over the life of the loan, but an adjustable-rate mortgage (ARM) can change after an initial period.
These are the bare-bones elements of what makes a mortgage payment, but there are other costs you’ll pay monthly in relation to your mortgage. For the most accurate picture of how much you will be paying from month to month, add the below categories to your calculations.
While it is one of the most beautiful places to live, California is known for having some of the highest taxes in the nation. Regrettably, California keeps true to form when it comes to property taxes. Only nine other states have a higher property tax. Expect to pay an average of 0.74% of a property’s assessed fair market value as property tax per year.
If you put down less than 20% of a down payment, you will be required to pay private mortgage insurance (PMI), or MIP (mortgage insurance premium) for FHA loans. These are payments you will make both upfront and monthly until you reach 20% equity, in the case of a conventional loan. In the case of an FHA loan, for the life of the loan
The cost of PMI can vary according to the size of your home loan, your credit score, and other factors. MIP is a bit more formulaic. The upfront premium of MIP is 1.75% of the loan amount, and the annual premium ranges from 0.45% to 1.05% of the average outstanding balance of the loan for that year. You can use this PMI calculator to see how much you could end up adding to your monthly mortgage.
If you get a mortgage, your lender will require you also obtain homeowner’s insurance. Homeowner’s insurance protects the dwelling, your belongings, and offers liability coverage for injuries that happen on your property. Eight different kinds of homeowner’s insurance vary based on the property type. Your lender may have a preference for the kind of insurance you get. Some HOA’s will have requirements as to coverage minimums. For rough calculation purposes, the average annual premium of homeowner’s insurance in the United States in 2017 was $1,211 and for a condo, it was $488.
Let Us Help You
We on the Reed Team are here to help buyers by leveraging our experience, resources, and professional connections. If you have questions about mortgages and how much home you can afford, we’re happy to help. This may be your first time walking through the home buying process, but it certainly isn’t ours. If you’re considering buying a home or have questions, reach out to us here or contact us at 949-392-6400.