Calculating your mortgage payment correctly may be harder than you think. Making sure that your projected monthly payment fits within your budget is crucial in determining that the house that you’ve picked out is actually affordable.
It’s a good idea to run some options in a mortgage calculator long before you ever start your home-buying journey. While property taxes and homeowners insurance can be hard to project on a home that you haven’t even picked out yet, our calculator allows you to estimate them.
Homeowners association (HOA) fees can be extremely common in some areas, particularly those with new construction and similar homes, but they are much less common in more established communities. HOA fees on some properties can constitute a large portion of your budget, so consider the type of home that you want to buy and look up one currently for sale to see if you can get an idea of the HOA fees. If you want a brand-new condominium in a community with plentiful amenities, expect to pay a hefty HOA fee.
Mortgage interest rates are rising rapidly, so periodically check back in with the calculator to make sure that you’re still shopping for a home in the right price range. Mortgage rates rose from an average of 3.76% in February 2022 to 4.17% in March 2022 and were climbing even faster in the first weeks of April 2022.
Your monthly mortgage payment is also referred to as principal, interest, taxes, and insurance (PITI). But the PITI acronym doesn’t quite encompass everything that you should include, such as:
Simply accepting the amount that the lender says you can pay is a recipe for stress and potential disaster. If you’re living paycheck to paycheck, as millions of Americans are, then give yourself some wiggle room in your monthly payment amount.
Set up an automatic savings draft of the difference in payments to go directly to your emergency fund. Once your emergency fund is filled, set it to go to your retirement account. Doing this will help you weather financial storms such as a job loss, a major home repair, or an unexpected health expense.
If you’re a two-income household, then qualifying for the mortgage off one income (even if you both intend to take on the mortgage) can give you significant financial freedom if one of you needs to take time off from a job. Make sure that your monthly mortgage payment is something that you can easily afford and isn’t a budget stretch that you would struggle to come up with after meeting an unexpected expense.
You shouldn’t include utilities in your monthly mortgage payment calculation, but it’s important to consider and include them as part of your budget. If you’re used to renting a 900-square-foot apartment, expect your utility expenses to go up significantly in a 2,000-square-foot home, in addition to new utilities such as trash, water, and sewer that you may not be used to paying directly, depending on where you currently live.
Repair costs aren’t something that you should include in your monthly payment calculation, but you absolutely should keep them in mind. If the property that you are considering is in need of significant repairs or renovations, then you absolutely will need to consider how you will cover those costs before you sign on to a mortgage on the home.
Your first mortgage payment is due the first of the month after your first 30 days in the home. For example, if you close on your home on Jan. 5, then your first payment isn’t due until March 1.
Before you even start shopping for a home, you should start playing with mortgage calculators and your budget to determine what you can truly afford. Your mortgage payment calculation should include principal, interest, taxes, and insurance (PITI), as well as any HOA, PMI, or MIP payments. While not part of your calculation, you absolutely should keep in mind other costs that come with owning a home, such as increased utility and repair costs, to make sure you can truly afford the home that you’ve picked out.
Freddie Mac. “30-Year Fixed-Rate Mortgages Since 1971.”
Consumer Financial Protection Bureau. “What Costs Will I Have to Pay as Part of Taking Out a Mortgage Loan?”
U.S. Department of Housing and Urban Development. “Single Family Upfront Mortgage Insurance Premium (MIP).”
Consumer Financial Protection Bureau. “When Can I Remove Private Mortgage Insurance (PMI) from My Loan?”
My Home by Freddie Mac. “Homeownership Costs: PMI, Taxes, Insurance and HOAs.”
Consumer Financial Protection Bureau. “Decide How Much You Want to Spend on a Home.”
Buying a Home
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