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Will a Mortgage Calculator Tell Me what I Can Afford?
A mortgage calculator is a handy tool, but it cannot replace a mortgage professional. A mortgage calculator can give you a ballpark figure for what you can afford, however, based on your income and, depending upon how sophisticated the calculator is, the local tax rates and the cost of homeowner’s insurance for the properties you’re considering.
Caveats
Homeowner’s insurance rates will vary considerably depending upon where the home you’re looking at is located – especially in southern Louisiana – where the ability to get private coverage or having to go with the state Fair Plan may make or break your mortgage application!
You have to take this into account and using national averages is really not that useful as a means of determining how much you’re going to end up paying for this necessary cost. An insurance company is really the only reliable source for this info, or a mortgage broker that can find out from an insurance company for you.
You’ll also want to make sure that you consider taxes into the equation. These will vary from place to place and not all online mortgage calculators even consider this. If your taxes are around $3,000 per year, you can count on that amount being added to the cost of owning your home. This may put the cost of the home over the edge for you where affordability is concerned.
Make sure you take into account the fact that a mortgage calculator just gives you a number based on a percentage. For instance, a mortgage broker works with you in a way that mirrors how a bank will determine your suitability for a loan. This will include taking into account the amount of expenses you have already. Your car loan, insurance payments, credit card debt and so forth will all factor into how much you can afford in the way of a mortgage.
A mortgage calculator will usually just give you a percentage, somewhere between 28 and 33 percent, of your total income and factor in a few other numbers to determine how much you could borrow.
Calculators Have No Lending Authority
A mortgage calculator is handy and can give you some rough ideas of your borrowing capacity. However, it’s important to remember that banks don’t make lending decisions based on what these calculators say you can afford.
So while a mortgage calculator can get you started, give you an idea of how much you should seek and so forth, it takes a home mortgage professional to really determine how much you can borrow.
How Much Mortgage Can I Afford?
Calculating how much you can afford on a home mortgage is a lot more complex than calculating how much you can afford in rent. In the latter case, a third of your income is usually a good measure for the most you want to pay in rent. Where a mortgage is concerned, you have to take some other considerations into account when you’re shopping around for houses.
Property Taxes
The amount you pay to finance the cost of the house is only the first part of determining how much the mortgage will actually cost you. You’ll also have to take into account the cost of property taxes in the area where you’re buying. Because this is an unavoidable expense, you have to factor it in from the start. If you don’t, you’ll almost certainly underestimate the costs you’ll pay each month.
Take the yearly taxes on the property and add a 12th of that sum to your monthly payments as most people pay this monthly via their escrow account. That way you avoid paying a large sum at one time each year to satisfy your property tax bill.
Homeowners, Flood & Mortgage Insurance
Homeowner’s insurance will be a necessity, as well. You’ll have to factor this into the cost of your home every month. Remember not to go by an average in this case. The homeowner’s insurance could be much more expensive if you live in an area that’s prone to flooding or to fires. This could vary by the neighborhood, so be sure that you’re making a good estimate of what you’ll have to pay.
Unless you show up with a very large down payment, you’ll also need mortgage insurance. This protects the lender from taking all of the risk if you should happen to default on the loan. You’ll have to factor this into the total cost of the mortgage, as well. Make sure your mortgage loan officer can explain this to you and make sure you understand the amount you’ll have to pay.
Debt to Income Ratios
Generally speaking, your mortgage should cost you somewhere between 28 and 33% of your gross monthly income. This cost has to include all the aforementioned expenses, as well as any others that may exist, such as neighborhood association fees and so forth.
The mortgage loan officers at NOLA Lending will be able to help you find a suitable loan that fits your income. One of the things that caused the housing crises was people buying way more than they could realistically afford. If you make smart decisions and buy within your means, a mortgage can be an affordable form of financing that offers you a lot of joy for the amount you pay every month.
Please contact us to assist you in calculating your estimated monthly payments!
