Mortgage Calculator

How do you decide how much house you can afford?

As a general rule, when buying a home you should try to keep your house payment lower than 30% of your gross monthly income. This should include mortgage interest, property taxes, HOA fees, and maintenance. If you choose to go above that percentage, it could impact you financially by taking away the ability to save or pay for unforeseen expenses. Use our affordability calculator above to help you determine how much house you can afford.

How do we calculate your monthly payment?

The formula we use in our mortgage calculator is: P = L*(c*(1 + c)^n)/((1 + c)^n – 1), where:

• P = Monthly mortgage payment
• L = Mortgage loan amount
• C = Your mortgage interest rate
• N = Number of monthly payments over the lifetime of the mortgage

What can you do to lower your mortgage payment?

There are a number of things that you can do to help lower your monthly mortgage payment if you can’t afford the home of your dreams. Try different scenarios on our mortgage calculator, but some ways to reduce your mortgage payment are as follows:

• Improve your credit score
• Put 20% down or as much as you can for your down payment
• Try to avoid PMI (private mortgage insurance) if you can
• Choose a longer-term mortgage like a 30-year rather than a 15-year loan
• Get a lower mortgage interest rate by shopping around to different lenders

What type of mortgage is right for me?

Each situation is different, but here are some guiding principles for each type of mortgage:

• 30-year fixed-rate mortgage – The most common option, typically has a lower monthly payment and your payment doesn’t change.
• 15-year fixed-rate mortgage- Similar to the 30-year fixed-rate mortgage, this option pays off your mortgage in 15 years, saving you money on interest.
• 7/1 ARM – ARM stands for an adjustable-rate mortgage which means your interest rate can fluctuate after 7 years. Generally, this is best used if you know you’ll be in the home for less than 7 years because the interest rate could go up after those 7 years.
• 5/1 ARM – Similar to the 7/1 ARM, but the interest rate can change after 5 years
• FHA 30-year fixed – Best for homebuyers with lower credit scores. Also, a great option if you want to put down a smaller down payment.
• VA loan – 30-year fixed-rate for qualifying veterans and active military. The benefit of this loan is not being required to put any money down and avoiding PMI.
• Jumbo funding – These are for loan amounts that exceed conventional loan limits

What is a property tax?

As a homeowner, you’ll pay property tax either twice a year or as part of your monthly home payment. This tax is a percentage of a home’s assessed value and varies by area. For example, a $500,000 home in San Francisco, taxed at a rate of 1.159%, translates to a payment of $5,795 annually.

500,000 x .01159 = $5,795

It’s important to consider taxes when deciding how much house you can afford. When you buy a home, you will typically have to pay some property tax back to the seller as part of closing costs. Because property tax is calculated on the home’s assessed value, the amount typically can change drastically once a home is sold, depending on how much the value of the home has increased or decreased. Our mortgage calculator takes the price of the home and gives you an estimate of how much your property tax will be.

What is a jumbo loan?

A jumbo loan is used when the mortgage exceeds the limit for Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy loans from banks. Jumbo loans can be beneficial for buyers looking to finance luxury homes or homes in areas with higher median sale prices. However, interest rates on jumbo loans are much higher because lenders don’t have the assurance that Fannie or Freddie will guarantee the purchase of the loans.

How much is homeowners insurance and what does it cover?

Homeowners insurance is a combination of two types of coverage:

• Property insurance protects homeowners from a variety of potential threats such as weather-related damages, vandalism, and theft.
• Liability insurance protects homeowners from lawsuits or claims filed by third parties for accidents that happen within the home.

The cost of a homeowners insurance policy will vary depending on the type of property being insured (e.g. condominium, mobile home, single-family residence, etc.) and the amount of coverage the owner desires. Lenders require that buyers obtain homeowners insurance in order for the insurance premium to be included in the monthly mortgage payment. A mortgage calculator gives an estimate of your potential cost, but talk to an insurance company to determine the exact amount.

What is a mortgage interest rate and APR?

Mortgage Interest Rate

The mortgage interest rate is the amount charged by a lender in exchange for loaning money to a buyer. It is a yearly percentage of the total loan amount and is calculated into the monthly mortgage payment.

Annual Percentage Rate (APR)

APR (%) is a number designed to help you evaluate the total cost of a mortgage. In addition to the interest rate, it takes into account the fees other costs you may encounter over the life of the loan. The APR is calculated according to federal requirements and is required by law to be stated in all home mortgage estimates. This allows you to better compare how much mortgage you can afford from different lenders and to see which is the right one for you.