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This formula can help you crunch the numbers to see how much house you can afford. Alternatively, you can use this mortgage calculator to help determine your budget. Homeowners in some developments and townhome or condominium communities pay monthly Homeowner's Association (HOA) fees to collectively pay for amenities, maintenance and some insurance. Mortgage interest is the cost you pay your lender each year to borrow their money, expressed as a percentage rate.
Compare mortgage rates for different loan types
Two benefits to this mortgage loan type are stability and being able to calculate your total interest on your home upfront. As you think about your mortgage payments, it’s important to understand the difference between what you can spend versus what you can spend while still living comfortably and limiting your financial stress. For example, let’s say that you could technically afford to spend $4,000 each month on a mortgage payment. If you only have $500 remaining after covering your other expenses, you’re likely stretching yourself too thin. Remember that there are other major financial goals to consider, too, and you want to live within your means. Just because a lender offers you a preapproval for a large amount of money, that doesn’t mean you should spend that much for your home.
How to calculate your mortgage payments
Your estimated annual property tax is based on the home purchase price. The total is divided by 12 months and applied to each monthly mortgage payment. If you know the specific amount of taxes, add as an annual total. Federal Housing Agency mortgages are available to homebuyers with credit scores of 500 or more and can help you get into a home with less money down. If your credit score is below 580, you'll need to put down 10 percent of the purchase price.
How much house can I afford with an FHA loan?
If you want to explore an FHA loan further, use our FHA mortgage calculator for more details. Bankrate follows a stricteditorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
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Homeowner's insurance is based on the home price, and is expressed as an annual premium. The calculator divides that total by 12 months to adjust your monthly mortgage payment. Average annual premiums usually cost less than 1% of the home price and protect your liability as the property owner and insure against hazards, loss, etc. In order to determine how much mortgage you can afford to pay each month, start by looking at how much you earn each year before taxes.
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They do not take into consideration if you want to set aside $250 every month for your retirement or if you’re expecting a baby and want to save additional funds. The 28/36 rule is a broadly accepted starting point for determining home affordability, but you’ll still want to take your entire financial situation into account when considering how much house you can afford. For more on the types of mortgage loans, see How to Choose the Best Mortgage. Loans backed by the FHA can also have more relaxed qualifying standards — something to consider if you have a lower credit score.
In addition to mortgages options (loan types), consider some of these program differences and mortgage terminology. When a loan exceeds a certain amount (the conforming loan limit), it's not insured by the Federal government. Loan limits change annually and are specific to the local market.
Remember, your monthly house payment includes more than just repaying the amount you borrowed to purchase the home. The "principal" is the amount you borrowed and have to pay back (the loan itself), and the interest is the amount the lender charges for lending you the money. Use this tool to calculate the maximum monthly mortgage payment you'd qualify for and how much home you could afford. This loan is a great option for anyone who is a veteran or currently serving in the United States military.
How much is homeowners insurance and what does it cover?
These features make an FHA loan particularly useful for many first-time homebuyers who have not yet saved enough for the amount of down payments that commercial lenders usually require for a conventional loan. Most financial advisors agree that people should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on total debt. The 28/36 percent rule is a tried-and-true home affordability rule of thumb that establishes a baseline for what you can afford to pay every month.
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In 2019, the average annual cost of homeowners insurance was $1,083 nationwide. The cost of 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. 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.It’s important to consider taxes when deciding how much house you can afford.
The amount of the property tax varies depending on where you live, and is usually calculated as a percentage of your property’s value. When you buy a home, you may have to pay a prorated amount of the property tax that depends on when you complete the home purchase. A house is one of the biggest purchases you can make, so figuring out how much you can afford is a key step in the home-buying process. The amount of cash a borrower pays upfront to buy a home; it goes toward the purchase price with mortgage loans typically used to finance the remaining amount.
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Typically, they start out at a lower interest rate than a fixed-rate loan and hold that rate for a set number of years before changing interest rates from year to year. For example, if you have a 5/1 ARM, you will have the same interest rate for the first 5 years, and then your mortgage interest rate will change from year to year. The main benefit of an adjustable-rate loan is starting off with a lower interest rate to improve affordability. To calculate how much house you can afford, we’ve made the assumption that with at least a 20% down payment, you might be best served with a conventional loan. However, if you are considering a smaller down payment, down to a minimum of 3.5%, you might apply for an FHA loan.
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By inputting a home price, the down payment you expect to make and an assumed mortgage rate, you can see how much monthly or annual income you would need — and even how much a lender might qualify you to borrow. USDA loans require no down payment, and there is no limit on the purchase price. However, these loans are geared toward buyers who fit the low- or moderate-income classification, and the home you buy must be within a USDA-approved rural area.
Conventional loans are backed by private lenders, like a bank, rather than the federal government and often have strict requirements around credit score and debt-to-income ratios. If you have excellent credit with a 20% down payment, a conventional loan may be a great option, as it usually offers lower interest rates without private mortgage insurance (PMI). You can still obtain a conventional loan with less than a 20% down payment, but PMI will be required. Mortgage insurance protects the mortgage lender against loss if a borrower defaults on a loan.
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