One of the biggest questions that people have during the home buying process is how much home they can actually afford. It is important for people to develop a budget prior to starting the home search process.
This will help them narrow down the options on the market, making their decision easier. Of course, there are multiple factors that play a role in dictating just how much home someone can afford.
It is important to consider the price of the home, the length of the mortgage, the interest rate on the mortgage, and the down payment. A mortgage calculator is able to do a lot of these things for the person, making this decision easier.
An Overview of a Mortgage Calculator
When someone is trying to figure out how much home they can afford, the first factor to consider is the size of the loan. Typically, this is equal to the price of the home minus the down payment of the home. After this, the mortgage calculator is going to use a variety of other factors to determine the average monthly payment.
Some of the factors that the mortgage calculator is going to consider include the interest rate on the loan, the length of the loan in number of years, and other costs that might be included in the monthly payment.
Some calculators will include the estimated real estate taxes and the homeowner’s insurance policy. Remember that the estimated real estate taxes and the homeowner’s insurance rates will vary from location to location.
After this, the calculator will give out an estimated monthly payment that people can use to construct a potential budget. This will help people during their home search by providing them a price range when looking for their new house.
Possible Added Private Mortgage Insurance
A huge factor that people need to consider is the potential for private mortgage insurance, often abbreviated PMI.
For those who might not know, those who put down a small down payment might be required to purchase PMI to get a loan from that bank. This is insurance the bank will have as a way to recoup their money if the home is foreclosed on.
This can be an added monthly expense on top of the monthly payment. This might impact the amount of home that someone can afford.
Often, this is about 0.5 percent of the mortgage; however, it can vary from provider to provider. In some situations, people can get the PMI waived by increasing the size of their down payment, lessening the risk taken on by the lender.
Trust the Professionals
A calculator is a great tool and can help someone with the home buying process. This calculator can be used to play with a variety of numbers, helping people look for different deals that might make a certain home more affordable.
While this tool is nice, it is also important to work with trained professionals during this process. There are many steps involved in buying a home and finding a mortgage is only one of them. Make sure that this process is completed correctly the first time around.