Are you ready to buy a house? We’ve previously talked about what you should save to buy a house but what if you have saved and you want to know how much your monthly payment will be? That’s where a mortgage calculator comes in. There are mortgage calculators online that will estimate certain inputs for you but you might be wondering what those inputs mean.
What Makes Up a Mortgage Payment?
A mortgage payment is the payment on the loan that was borrowed from the lender. Unless you are paying cash in full, you will have to borrow the balance. You will typically borrow from a bank, but there are other ways to pay for the balance, like borrowing from a hard money lender, securing owner financing or contacting the Mafia.
Ok, I was joking on that last one, but I just wanted to make sure you were still paying attention. 🙂
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There are several components to a mortgage payment but the two basic components are principal and interest. The principal is essentially the purchase price, or borrowed amount on the home. The interest is the payment you make for borrowing the money. A loan will amortize, or pay off, over its life. The payments at the beginning of the loan term will be mostly interest but as the loan is amortized and the principal shrinks, the loan payments will be mostly principal.
Taxes and Insurance for Homes
It is absolutely essential to protect your home with insurance and so most mortgage calculators will want you to estimate the insurance payment to factor that into your mortgage payment. There is also a possibility that you will have to pay private mortgage insurance or PMI, if your down payment puts you at less than 20% equity. According to the Mortgage Insurance Companies of America, average PMI will run you about 50 to 80 dollars a month on a home priced at $159,000. You also need to remember that you will have to pay property taxes as a homeowner and that could affect your monthly payment if the mortgage payment makes prepaid tax payments.
Interest Rates and Credit
Before you even start shopping for a home, you should check your credit report and make sure that everything is accurate. There are a variety of factors that go into a bankers decision to loan to you but you don’t want to get denied because there is erroneous negative information on your credit report. The mortgage interest rate that you get is directly influenced by your credit worthiness, as determined by your credit score and what’s on your credit report so be sure to check it. Then, shop around for mortgage lenders to find the best rate.
Using a Mortgage Calculator
The best part of using a mortgage calculator is the ability to play around with the numbers and test different home prices, interest rates and loan terms. Now that you know what goes into the calculation, try it yourself!
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How To Qualify for a Mortgage as a Young Adult
Moving out on your own is a big deal, especially if you are purchasing your first home right out of living with your parents. Many young adults assume that you need to wait until you are in a certain age bracket in order to purchase a home, but nothing could be further from the truth. Following the steps below will help any young adult find their way through the housing market and on their way to purchasing their own home.
4 Steps to Buying a Home as a Young Adult
Get Your Credit in Order
As long as you didn’t go out and sign up for several credit cards as soon as you turned 18, then you likely don’t have much if any credit at all. Having no credit is just as bad as having bad credit. Try to sign up for one major credit card and one department store credit card. This will help show a revolving credit history.
Make an Appointment With a Lender
Meeting with a lender and discussing what you need to do to purchase a home is a great second step. They’ll be able to run your credit, let you know if you have any issues that need to be resolved, or if you can move ahead fairly quickly with obtaining a loan. Click here to find a lender in your area.
Find a Home
Once you’ve met with the lender they will give you an idea of the mortgage loan amount you’ll qualify for. A real estate agent will be a great tool in finding a home within your budget. Keep in mind that homes outside of your budget can sometimes be talked down to your budget or close.
Gather your Documents
Once you’ve found your home, had you’ll need to get your loan approved and this require important documents. You’ll need to gather any tax returns you have; if not possible your lender will discuss what else they can use. You’ll also need proof of income you have, social security card, banking information, and photo ID. Each lender is different and may require more or less documents; this should be discussed with you your initial visit.
Once all 4 steps are completed you shouldn’t have to wait too long before your new home is yours and a set of keys is being handed to you. Be sure to shop around to different lenders before settling on one, each one specializes in something different and you may be eligible for programs that help with down payments, closing costs or reduce the interest rate on your home loan. Compare mortgage rates in your area.